HC2091: Business Finance – Evaluate the Firm Capital Structure Policy and Payout Policy – Business Assignment Help

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Assignment Task :

Unit Learning Outcomes Assessed:

1. Critically analyse finance alternatives to manage short- and long-term debts.

2. Critically understand and practice valuation of financial instruments, including ordinary shares, preferred shares and bonds.

3. Describe the effects of interest rates on business finance.

4. Evaluate the firm capital structure policy and payout policy.

5. Evaluate alternative funding policies and instruments available to businesses including the banking sector and nonbanking sector.

Description

Each week students are provided with three tutorial questions of varying degrees of difficulty. The tutorial questions are available on Blackboard in the Tutorial Folder weekly. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions from weeks 7 to 12 inclusive and submit these answers in a single document.

 

The questions to be answered are:

Week 7 – Question 1 

a. Middleton expects to buy a 9.5% coupon, 15 years bond today, when it is first issued by Alex PLC. If interest rates suddenly rise to 12.5%, what happens to the value of Middleton’s bond? Why? 

b. A corporate bond has a face value of $1 000, a coupon rate of interest of 10.5% per annum, payable semi-annually, and 20 years remaining to maturity. The market interest rate for bonds of similar risk and maturity is currently 8.5% per annum.

Required:

i. What is the coupon payment of the bond?  

ii. What is the present value of the bond? 

iii. If the coupon payment is payable annual (based on the same information), what is the value of the bond?  

Week 8 – Question 2  

a. Briefly discuss the relationship between the following: (Word limit 50-70 words)

i. Share price and investors required rate of return

ii. Share price and divided growth rate

b. Otama LTD has an issue of preference shares outstanding that pays a $2.85 divided every year. If this issue currently sells for $77.32 per share, what is the required return?

 

c. Price Tigers LTD expects to pay a $3.25 per share dividend next year. The company pledges to increase its dividend by 5.1% per year, indefinitely. If you require a return of 11% on your investment, how much will you pay for the company’s share? 

 

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