Shareholder value and the cost of capital

Question # 00619133 Posted By: katetutor Updated on: 11/17/2017 04:00 AM Due on: 11/17/2017
Subject Finance Topic Finance Tutorials:
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Shareholder value and the cost of capital


  1. 1. AJI Limited current share price is $20 and it has just paid a $1 dividend. As AJI is a mature firm, this $1 dividend is expected to grow at a rate of 4% per year. What is an estimate of the return shareholders of AJI Ltd expected to earn?


2. AJI also has preference shares outstanding that pays $2 per share fixed dividend. If this stock is currently priced at $24, what is the return that preference shareholders expect to earn?


3.AJI has issued a 5 year bond with a coupon rate of 11% and par value of $1,000. The price received by AJI was $1,200. What is AJI’s pre-tax cost of debt?

  1. 4.AJI has 5m ordinary shares outstanding and 1m preference shares outstanding. Its liabilities have a book value of $20m. If AJI’s ordinary and preference shares are priced as in parts a) and b), what is the market value of the AJI’s assets?
  2. 5.AJI faces a 30% tax rate. Given the information in parts a) – d), and your answer to those problems, what is AJI’s WACC?
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