Accounting Question

‫المملكة العربية السعودية‬‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 3
Principles of Finance
FIN101 (1st Term 2023-2024)
Deadline: 2/12/2023 @ 23:59
Course Name: Principles of Finance
Student’s Name:
Course Code: FIN101
Student’s ID Number:
Semester: I
CRN:
Academic Year: 2023-24 1st Term
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/ 10
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
• This assignment is an individual assignment.
• Due date for Assignment 3 is 2nd December 2023.
• The Assignment must be submitted only in WORD format via allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬
College of Administrative and Financial Sciences
Assignment Purposes/Learning Outcomes:
No.
Course Learning Outcomes (CLOs)
CLO5 Evaluate cost of capital for decisions related to financing the operations of a corporation.
CLO6 Measure financial corporate performance.
Assignment questions: Total grade – 10 points
1. The market value of Majestic, Inc.’s debt claims is $500, and its equity claims are also
$500. What is Majestic’s weighted average cost of capital if the after-tax cost of debt
financing is 10 percent, and the cost of equity is 15 percent. (2 Marks)
2. Critical thinking Question: Justify why the marginal income tax rate for the company
does not need to be considered when calculating the after-tax cost of equity (common
or preferred). (1.5 Marks)
3. If you were a manager of a company, discuss the variables you would take into
account when determining the dividend payments to your employees. (1.5 Marks)
4. Asia-based Ashraf Inc., a high-tech company, raised $92 million in its initial public
offering (IPO). Of the $35 offering price per share, the corporation got $29. $400,000
was spent on the firm’s legal fees, SEC registration fees, and other out-of-pocket
expenses. The first trading day saw a 17% spike in the company’s stock price. How
much did the company have to pay in total to issue the securities? (3 Marks)
5. It is anticipated that Jack Security will continue to generate $300 in cash flow in the
near future. Jack’s cost of equity capital is thirty percent, and the company is fully
financed by equity. The management wants to borrow $100 at a 10 percent interest
rate in order to buy back $100 worth of shares (assuming that the loan will be
outstanding for an indefinite period of time). What is the firm’s current value today,
using Modigliani and Miller’s Proposition 1; additionally, what is the value of the
claims made on the firm’s assets after the stock repurchase? After the share
repurchase, what rate of return will investors need to see on common stock? (2
Marks)
*Note: Reference is mandatory (not less than 10)
1 mark will be reduced if references are not provided.