Students are required to complete the following: Michael Wright graduated from the University College in June and has been working for about a month as a junior financial analyst at Caledonia Products Ltd.
finance
Description
Instructions:
Students are required to complete the following:
Michael Wright graduated from the University College in June and has been working for about a month
as a junior financial analyst at Caledonia Products Ltd. When Michael arrived at work on Monday
morning, he found the following memo in his e-mail.
Since these projects involve additions to Caledonia’s highly successful Avalon product line, the
company uses the WACC of the line to evaluate the additions. The projects are independent
1. Cost of Debt is 15.63% and the tax rate is 20%;
2. The dividend paid out for preference shares is $6. Each share currently trades at $21 and has a floatation cost of $3;
3. Ordinary shares receive a dividend of $1.50 per share. It has
growth rate of 10% and it is currently trading at $15 with a
floatation cost of $2.31
Michael was not surprised by the memo, for he had been expecting something like this for some time.
Caledonia followed a practice of testing each of their new financial analyst with some type of project
evaluation exercise after they have been on the job for a few months. After re-reading the memo, Michael decided on his plan of action and made up the following “to do” list
