Use your analytical skill and knowledge to calculate expected return on NBA's equity, preference shares and debt. With expected return on equity, preference shares and debt calculate WACC.
Question1. Subprime mortgage crisis is an example of a financial crisis that affected global markets worldwide. Give another example of a financial crisis in your discussions below.
? Discuss the possible causes of the financial crisis.
? Discuss the impact of the financial crisis on financial institutions and businesses elsewhere including your own country.
? Explain how the financial crisis affected the economies of different countries.
Question 2. NAB Ltd current share price is $30 and it has just paid a $1.50 dividend. Dividends of NAB are expected to grow at the rate of 5% per year.
A. What is an estimated return that shareholders of NAB expect to earn?
B. NAB Ltd also has preference share outstanding that pays fixed dividend of $2.30 per share. If preference stock is currently priced at $25, what is the return that preference share holders expect to earn?
C. Five years ago NAB Ltd issued 15 year bond with face value of $1000 and coupon rate of 9%. The price of these bonds is currently is $950. What is NAB's pre-tax and after-tax cost of debt?
D. NAB Ltd has 5000,000 ordinary shares outstanding and 1,500,000 preference shares outstanding, and its equity has a total book value of $50,000,000. Its liability has a book value of $25,000,000. If NAB's ordinary and preference shares are priced as in parts (A) and (B) above, what is the market value of NAB's assets?
E. What is weighted average cost of capital (WACC)
F. If NAB's liability increase by 100%. How the increase in liability will affect WACC of NAB. Explain.
Tax rate is 30%.