BUACC5936 Financial Management
a) Should small or high-growth firms have higher betas than larger and more mature firms? Discuss.
b) Due to the distinctive nature of unsystematic risk, it can be reduced or eliminated through diversification. Do you agree with this statement? Explain.
Sakura PLC is a leading investment company in Australia and you the below details relating to the capital structure of the company. Information concerning raising new capital
Bonds $1,000 Face value
13% Coupon Rate (Annual Payments)
20 Term (Years)
$25 Discount offered (required) to sell new bonds
$10 Flotation Cost per bond
Preference Shares 11% Required rate to sell new preference shares
$100 Face Value
$3 Flotation cost per share
Ordinary Shares $83.33 Current Market Price
$4.00 Discount on share price to sell new shares
$5.40 Flotation Cost per bond
$5.00 2019 - Proposed Dividend
Dividend History $4.63 2019
Current Capital Structure
Extract from Balance
Sheet $1,000,000 Long-Term Debt
$800,000 Preference Shares
$2,000,000 Ordinary Shares
Current Market Values $2,000,000 Long-Term Debt
$750,000 Preference Shares
$4,000,000 Ordinary Shares
Risk Free Rate 5%
a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available.
b) Calculate the WACC given the existing weights.
d) Calculate the Net Present Value, Internal Rate of Return and Payback Period