Please show all workings for the questions below: Question 1 Part 1: Wattle Corp.

announced today, a 1-for-8 rights issue to the shareholders in 6 weeks time. Prior to the announcement the share price was trading at 6.!". #ou owned 1$, """ shares in the group prior to the rights issue. a% Calculate the change in the shareholder wealth if the share price e&-rights was 1"' greater than the theoretical price (hares )ssued through right issue* 1$"""+8*18,$ -heoretical .alue of shares after right issue*6.!"/01$"""118,$%*1"6!1! 2ctual .alue*6.!/0111"'%/01$"""118,$%*116344 Change in shareholders wealth*1"6!1 or 1"' increase 1"6!1+1"6!1!*1"' Part 2: If the current Treasury bill is trading at 3.50%p.a.and the market premium is .5%p.a. The !"#I$% &'mpany has a beta ()* 'f 0.+. 5% 6eing a firm 5elie7er of C2P8, if you currently own the shares of 9:;)(< what would 5e your decision if the companys performance to date is 6'= 2ccording to C2P8 ;e>uired rate of return* !.$'1".3/4.$'*,.$$' ?ecision will 5e to sell the shares as the returns at 6' are 5elow the re>uired rate of ,.$$'. If the current Treasury bill is trading at ,.25%p.a.and the market premium is 5% p.a. #isk-ay c'mpany has a beta ()* 'f 1.05. c% 6eing a firm 5elie7er of C2P8, if you currently own the shares of ;iskway what would 5e your decision if the companys performance to date is 3'.= 2ccording to C2P8 ;e>uired rate of return *6.@$'11."$/$'*11.$' ?ecision will 5e to sell the shares as the returns at 3' are 5elow the re>uired rate of 11.$'. Part 3: -he earnings for Crime Aa5 ha7e 5een predicted for the ne&t four years and are listed 5elow. -hey currently ha7e ,$",""" shares outstanding. ?etermine the yearly di7idend per share to 5e paid if the following policies are enactedB d% Constant di7idend payout ratio of 4"' e% (ta5le dollar di7idend targeted at 4"' of the earnings o7er the four year period

ear 1 @ ! 4 -otal

Profit after !a" 1$""""" @$""""" 1,$"""" 3$"""" 6,"""""

Stable DPR=40% Dividend !otal Dividend#Sha Dividend#Sha Dividend re re 6""""" ".8 ".83! 1"""""" 1.!! ".83! ,""""" ".3! ".83! !8"""" ".$1 ".83! @68""""

d% Constant di7idend payout ratio of 4"' 0Profit after ta&/di7idend payout ratio% +-otal no. of shares for each year e% (ta5le dollar di7idend targeted at 4"' of the earnings o7er the four year period 0-otal profit for 4 years/?i7idend payout ratio%+0no.of years/total no of shares% *06,"""""/4"'%+04/,$""""%*".83! Part : )f a company is forecasted to pay ".14 di7idend 1 year from now, ".16 in year @, ".18 in year ! and then maintain a ".@@ di7idend per share from year 4 into a foreseea5le future. What is the ma&imum price you are prepared to pay for the share of this company if your re>uired rate of return is 1!.$'= Price* ".14+0111!.$'%1".16+0111!.$'%C@1".18+0111!.$'%C!10".@@+1!.$'%+0111!.$'%C4 *".1@!!481".1@4@"@1".1@!1"81".38@ *1.!$! Question $: 9ewmanAtd wishes to know its cost of capital,as it is a5out to em5ark on a maDor capital e&pansion program. -he following information has 5een pro7ided so that you could calculate the cost of capitalB E-he preference shares are selling at 8.6" E-he 5ank loan was taken out at 3.6'p.a. and interest is paya5le >uarterly.

E-he corporate ta& rate is @8' E9ewman Atd Dust paid an annual ".6" di7idend last year. -he company recently announced the di7idend for this year is e&pected to 5e ".3" and they are confident they are a5le to maintain such di7idend growth rate into a foreseea5le future. E-he ordinary shares of the company are currently trading at ,.@" today E-he current market yield on 5onds with similar risk is 6.$' p.a. -his is !."'p.a. a5o7e the treasury security with the appro&imate maturity. E-here are four 04% interest payments to 5e made on the outstanding 5onds. F&tract of 6alance (heet 05ased on 5ook 7alues%B

Required: Calculate the weighted a7erage cost of capital0W2CC%. 2ll dollar calculations can 5e rounded to the nearest dollar. 2ll percentage calculations should 5e performed to four decimal places. PR%&%R%'(% S)*R% (*P+!*, 8arket .alue* 8.6/1""""""*86""""" ?i7idend on (tock* 6/,'*".4@ Cost of preferred stock* ".4@+8.6 *4.88' %Q-+! F&pected growth in di7idend*0.3-.6%+.6*$"' Gence ,.@* ".3+0ke-$"'% ,.@<e*4.$ <e*6@.$' .*'/ ,0*' Compounded )nterest rate on 6ank Aoan*

0113.6'+4%C4-1* 3.3$' 2fter ta& cost* 3.3$'/01-@8'%*,.16' .0'D 2fter ta& cost* 6.$'/01-@8'%*4.68' 8arket .alue of a 6ond *$+0116.$'%1$+0116.$'%C@1$+0116.$'%C!1$+0116.$'%C411""+0116.$'%C4*34.86 -otal 8arket .alue* 34.86/1!""""*1@!!18"" 1arket 2alue 86""""" 11"""""" 6"""""" 1@!!18"" !,3!18"" 4.88'/86"""""+!,3!18"" 6@.$"'/11""""""+!,3!18 "" ,.16'/6""""""+!,3!18"" 4.68'/1@!!18""+!,3!18" " 3*( ( 1.11' 18.1@ ' 1.1!' 1.$@' @1.83 '

(ost PR%&%R%'(% S)*R% (*P+!*, %Q-+! .*'/ ,0*' .0'D !otal 4.88' 6@.$" ' ,.16' 4.68'