Question 3 UNIVERSITY Globex Plc is a Telecom company listed on the London Stock Exchange, which is looking to expand its operations into cloud-based networks that will enable a rapid scaling of its network services. The company has grown significantly in recent years with annual dividends having seen consistent growth as follows: Years Dividends to abla 2019 10.00p 2020 12.00p 2021 13.50p 2022 14.50p 2023 15.75p The company expects dividends to continue to grow for the foreseeable future in line with this recent dividend profile. Extracts from the company's most recent Balance Sheet as at 31 May 2023 are set out below: £000 £000 Ordinary £1 shares 14,000 5.5% £1 irredeemable preference shares 10,000 Retained earnings 19,400 Total Equity 43,400 7% irredeemable debentures (at nominal value) 50,000 6% unsecured loan notes (at nominal value) 36,000 Total non-current liabilities 86,000 The current ex-dividend ordinary share price is £3.50, whilst the current ex-dividend preference share price is £0.77. The irredeemable debentures have a current ex-interest market price of £86.50 per £100 debenture, whilst the unsecured loan notes have a current ex-interest market price of £84 per £100 loan note and will be redeemable at par in seven years' time. The company pays corporation tax at a rate of 19%. The company's current liabilities do not include any overdraft borrowing. Regarding the company's proposed expansion plans, the CEO has expressed his preference for any financing requirements to come from increasing debt rather than increasing equity in order to move towards minimising the company's Weighted Average Cost of Capital (WACC). Page 7 of 12 135361
Question 3 UNIVERSITY Globex Plc is a Telecom company listed on the London Stock Exchange, which is looking to expand its operations into cloud-based networks that will enable a rapid scaling of its network services. The company has grown significantly in recent years with annual dividends having seen consistent growth as follows: Years Dividends to abla 2019 10.00p 2020 12.00p 2021 13.50p 2022 14.50p 2023 15.75p The company expects dividends to continue to grow for the foreseeable future in line with this recent dividend profile. Extracts from the company's most recent Balance Sheet as at 31 May 2023 are set out below: £000 £000 Ordinary £1 shares 14,000 5.5% £1 irredeemable preference shares 10,000 Retained earnings 19,400 Total Equity 43,400 7% irredeemable debentures (at nominal value) 50,000 6% unsecured loan notes (at nominal value) 36,000 Total non-current liabilities 86,000 The current ex-dividend ordinary share price is £3.50, whilst the current ex-dividend preference share price is £0.77. The irredeemable debentures have a current ex-interest market price of £86.50 per £100 debenture, whilst the unsecured loan notes have a current ex-interest market price of £84 per £100 loan note and will be redeemable at par in seven years' time. The company pays corporation tax at a rate of 19%. The company's current liabilities do not include any overdraft borrowing. Regarding the company's proposed expansion plans, the CEO has expressed his preference for any financing requirements to come from increasing debt rather than increasing equity in order to move towards minimising the company's Weighted Average Cost of Capital (WACC). Page 7 of 12 135361
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter7: Corporate Valuation And Stock Valuation
Section: Chapter Questions
Problem 26SP
Related questions
Question
a) Based on the information in the picture, calculate, using market values, Globex Plc's Weighted average cost of capital (show all workings clearly)
b) critically discuss any two of the assumptions underpinning the post tax version of the Modigliani & Miller model of the relationship between WACC and gearing
Transcribed Image Text:Question 3
UNIVERSITY
Globex Plc is a Telecom company listed on the London Stock Exchange, which is looking to
expand its operations into cloud-based networks that will enable a rapid scaling of its network
services. The company has grown significantly in recent years with annual dividends having
seen consistent growth as follows:
Years
Dividends
to abla
2019
10.00p
2020
12.00p
2021
13.50p
2022
14.50p
2023
15.75p
The company expects dividends to continue to grow for the foreseeable future in line with
this recent dividend profile. Extracts from the company's most recent Balance Sheet as at 31
May 2023 are set out below:
£000
£000
Ordinary £1 shares
14,000
5.5% £1 irredeemable preference shares
10,000
Retained earnings
19,400
Total Equity
43,400
7% irredeemable debentures (at nominal value)
50,000
6% unsecured loan notes (at nominal value)
36,000
Total non-current liabilities
86,000
The current ex-dividend ordinary share price is £3.50, whilst the current ex-dividend
preference share price is £0.77.
The irredeemable debentures have a current ex-interest market price of £86.50 per £100
debenture, whilst the unsecured loan notes have a current ex-interest market price of £84
per £100 loan note and will be redeemable at par in seven years' time.
The company pays corporation tax at a rate of 19%. The company's current liabilities do not
include any overdraft borrowing.
Regarding the company's proposed expansion plans, the CEO has expressed his preference
for any financing requirements to come from increasing debt rather than increasing equity in
order to move towards minimising the company's Weighted Average Cost of Capital (WACC).
Page 7 of 12
135361
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