Anwar owns 500 shares of frozen food Awesome Food Berhad which he purchased during the recession in January: Fundamentals Of Finance II Assignment, MUM, Malaysia

Question 1

Anwar owns 500 shares of frozen food Awesome Food Berhad which he purchased during the recession in January 2009 for RM25 per share. Awesome Food Berhad is regarded as a relatively safe company because it provides a basic product that consumer need in good and bad economic times. Anwar read in the Malaysian Business Journal that the company’s board of directors had voted to split the stock 2-for-1. In June 2015, just before the stock split, Awesome Food Berhad shares were trading for RM58.

Answer the following questions about the impact of the stock split on his holdings.

• How many shares of Awesome Food Berhad will Anwar own after the stock split?
• Immediately after the split, what do you expect the value of Awesome Food Berhad to be?
• Describe the total value of Anwar’s stock holdings before and after the split. What do you find?
• Does Anwar experience a gain or loss on the stock as a result of the 2-for -1 split?
• What are stock splits and the advantages of stock splits?

Question 2

Nona Corporation is interested in measuring the cost of each specific type of capital as well as the weighted average cost of capital. Historically, the firm has raised capital in the following manner:

The tax rate of the firm is currently 40%. The needed financial information and data are as follows:

Debt
Nona can raise debt by selling RM1,000-par-value, 8.5% coupon interest rate, and 10-year bonds on which annual interest payments will be made. To sell the issue, an average discount of RM15 per bond needs to be given. There is an associated flotation cost of 2% of the par value.

Preferred stock
Preferred stock can be sold under the following terms: The security has a par value of RM100 per share, the annual dividend rate is 7% of the par value, and the flotation cost is expected to be RM5 per share. The preferred stock is expected to sell for RM101 before cost considerations.

Common stock
The current price of Nona’s common stock is RM28 per share. The cash dividend is expected to be RM2.80 per share next year. The firm’s dividends have grown at an annual rate of 5%, and it is expected that the dividend will continue at this rate for the foreseeable future. The flotation costs are expected to be approximately RM1.50 per share. Nona can sell new common stock under these terms.

Answer

Request Answer of this Assignment