Question Paper

Section:
Total marks: 16
Subject: CAF 06 – MFA
Time allowed: 30 minutes
Teacher: Mr. ZIA UL HAQ
Test – 5 Date:

Name: Rise ID:

Question.1
Huwui Limited has the following capital structure at 31 December 2016:

Share Capital 1,428,000

Retained Earnings 2,750,000
10% Long Term Debt - Irred 1,250,000
12% Long Term Debt – redeem 780,000
Bank O/D 50,000 (16% rate)

1. The latest P/L of the company shows the following:

Profit before tax 1,410,714

Profit after tax 987,500
Profit retained 389,247

2. Dividend history
2012 2013 2014 2015 2016
Dividend per share 4.900 5.500 5.995 6.475 7.122

3. Market rate (adjusted for tax) for irredeemable debt is 9.1%

4. Redeemable debt shall be redeemed at 31 December 2019, its market value is 87
5. Cost of equity is 21%

Required:
Calculate WACC for the company (10)

Question.2
ARY has recently appointed a new finance director (Acha Chartered Accountant)
Capital structure of the company is as follows:

2 million Rs. 0.25 ordinary shares valued at Rs. 0.87. The annual dividend of Rs. 180,000 which represent 70% of the
amount available for distribution, has just been paid.
The company expect to achieve a return of 26% on its retained profits

Rs. 1 million 8% Debentures which are redeemable in eight years time at a premium of 5%.
Debenture holders require a return of 11%.
Tax rate observed in the country is 30%

Required:
Calculate WACC for the company (06)

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