Robin, Charisse R.

CEM-115-1 / A2
03 / 22 / 17

PROBLEM 1.0 (Cost of Capital)

Calculate the cost of capital in the following cases:

i) X Ltd. Issues 12% Debentures of face value P100 each and realizes P95 per Debenture. The
Debentures are redeemable after 10 years at a premium of 10%
ii) Y Ltd. Issues 14% preference shares of face value P100 each, P92 per share. The shares are
repayable after 12 years at par.

Note: Both companies are paying income tax at 50%

PROBLEM 2.0 (Cost of Capital)

a) A company raised preference share capital of P1,000,000 by the issue of 10% preference share
of P10 each. Find out the cost of preference share capital when it is issued at (i) 10% premium,
and (ii) 10% discount.
b) A company has 10% redeemable preference share which are redeemable at the 6th end of 10th
year from the date of issue. The underwriting expenses are expected to 2%. Find out the
effective cost of preference share capital.
c) The entire share capital of a company consists of 1,000,000 equity share of P100 each. Its
current earnings are P10,000,000 p.a. The company wants to raise additional funds of
P25,000,000 by issuing new shares. The flotation cost is expected to be 10% of the face value.
Find out the cost of equity capital given that the earnings are expected to remain same for
coming years.
PROBLEM 3.0

On January 2 (as a New Year's resolution), Emme starts work on a cash flow projection for the next 12
months. She starts by putting the $5,000 she has in her business bank account in the "Cash at Start of
Month" column for January. In her "Cash Coming In" section, she includes her cash sales (which are
about 75% of her sales) and her credit sales (about 25% of her sales) on separate lines. She adds in all of
the cash sales, but only 80% of her credit sales, because some percentage of her credit customers
always take longer than 30 days to pay. In the "Cash Going Out" section, Emme includes her variable and
fixed costs, putting the annual insurance premium she's about to pay in the January column rather than
spreading it over 12 months.

Emme’s Cash Flow Analysis (Part 1)

January February March April May June July
Cash at Start of Month
Cash coming in
Sales Paid (75%)
Collections of Credit Sales

Loans & Transfers

Total Cash in
Cash going out
Inventory
Rent
Wages
Utilities
Phone
Insurance
Ads
Accounting
Miscellaneous
Loan Payments
Taxes
Total Cash Out
Cash at End of Month
Emme’s Cash Flow Analysis (Part 2)
August September October November December
Cash at Start of
Month
Cash coming in
Sales Paid (75%)
Collections of Credit
Sales
Loans &
Transfers
Total Cash in
Cash going out
Inventory
Rent
Wages
Utilities
Phone
Insurance
Ads
Accounting
Miscellaneous
Loan Payments
Taxes
Total Cash Out
Cash at End of
Month