31 Jan 4. Preference shares will be issued
Questions 5 – 9 relate to Topic 9 and below are data to be used for these questions.
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Biomedics Ltd is an Australian publicly listed firm on the Australian Stock Exchange. All shareholders are Australian residents for tax purposes. The firm wishes to expand into a sleep apnoea device that is much less intrusive to its wearers than those currently on the market and is looking at alternative financing sources and the firm’s capital structure. The following relevant data has been identified.
1. It has a long term capital structure of 50% ordinary equity, 10% preference shares and 40% debt.
2. The target capital raising is $100,000,000
3. To raise capital the Biomedics broker advises that they can sell new 10 year corporate bonds to investors for $1,070 with an annual coupon of 5% and a face value of $1,000. Issues costs are expected to be 1% of the face value
4. Preference shares will be issued at $150 per share and pay a dividend of $11.25. They will have an issue cost of 3%
5. Ordinary shares will be issued at a cost of 2% and are currently trading at $6.75 per share. They will pay a dividend of $0.58 this year and dividends are expected to grow by a constant rate of 4%
6. The company pays tax on profits at a rate of 30%
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