FIN622 Corporate Finance Assignment 2 Solution Spring 2014

Seasons Corporation is a listed company which produces cooking oil. Now the company has an intention to introduce its new product range of “Frozen items” in the market. For this purpose a new plant is required. This project will require a lot of funds. Company has a plan to finance it by issuing bonds and stocks in the following manner:

1. Bonds issued to five companies:
Company Book value of
Bond (Rs.)
YTM (%)
KK Company 1,500,000 6.5
Allied Company 1,000,000 6
N&T Technologies 2,000,000 8
Ziema Company 2,5000,00 7.5
Aazam Textile Company 3,000.000 5

2. Common stock:
65,000 common shares issued at Rs.100 per share. Current market price of common stock is
Rs.102 per share. Divided per common share in current year is Rs.5. Growth rate is 10%.

3. Preferred stock:
100,000 preferred stocks at par value of Rs.35 per share and market value of
preferred stock is Rs.3,500,000. Dividend per preferred share is Rs.3.2.
Income tax rate is 30%.

As a financial manager of the company, you are required to calculate:
1. After-tax cost of debt
2. Cost of equity
3. Cost of preferred stock
4. Weighted Average Cost of Capital (WACC)