8. Company could redeem them – that is buy them back today at $93
Company could redeem them – that is buy them back today at $93.45 or make 5 interest payments of $14 each year plus redeem them at face value of $100 in five years time

13. We could have combined Ord Shares and Retained Earnings but if the question asked us to separate them then we should
2000,000 x Market value of shares 3.60 = $3,600,000
Balance Sheet Values

15. Past Exam Papers…

23. Testing the theory behind using WACC rates for investment criteria
Example 1
Assets =
Equity
Shares only
100,000
Shareholders looking for 10% return and shares currently trading at $1
So dividend will be .10 per share or $10,000 in total
Therfore our assets need to produce a NPAT of $10,000
Note income before tax = 10,000 / .7 =
$ 14,285.72
Less Tax
$ 4,285.71
Profit After tax
$ 10,000.00
My theory is when working out the minimum requirement rate for our investments or capital expenditure
we should get the WACC and divide by .7 , that is we need a return on Assets before tax of 10 / .7 = %

24. Example 2 - same as example 1 except we have $50,000 shareholders and a $50,000 mortgage at 10%
Assets =
Equity +
Liabilities
100,000
50,000
WACC calc is 50% of 10% + 50% of (10% x 0.7) = 8.5%
So WACC says Assets only have to earn 8.5% return or $8500,
but again I think it should be 8500 / .7 = Revenue before tax 12143
Assume interest was the only expense we had to cover before tax , therefore we need a profit
after tax of $5000 for our shareholders then to have a profit after tax of $5000 we need to earn
5000 / .7 = 7143 before tax + profit required to cover shareholders dividend after tax - $5000
Proof
So Revenue would be $ =
$ 12,143.00
Less Expenses - Interest
$ 5,000.00
Profit before tax
$ 7,143.00
Less Tax
$ 2,142.90
Profit After tax