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Case Problems Syntax Corporation and Pak Beverages

  • Date Submitted: 03/17/2016 02:43 AM
  • Flesch-Kincaid Score: 55.9 
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Case Problems Syntax Corporation and Pak beverages
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Instructions for attempting Assignment:
1.Attempt all questions.
2.Please use a 12-point font in Times New Roman.
3.Submit your assignments with in due date and time. Late assignments will not be accepted.
4.No credit will be given to copied Assignments. Therefore students are advised to attempt assignments by themselves and answer all the questions in their own words.
5.Show all necessary calculations.

Analyze the following two cases and gave your suggestions with all necessary calculations.

Case: 01
Syntax Corporation has the following capital structure:
Debentures = $ 3.26 Billion
Common shares = $ 6.52 Billion
Total = $ 9.78 Billion
The corporation has no preferred stocks in its capital structure. Under the prevailing market conditions, financial analysts have estimated a return of 13% p.a for common share of the corporation. Debentures carry an interest rate of 9.5%. Corporate tax rate is 39%. What weighted average cost of capital would you suggest for the corporation. Your suggestion should be supported by all necessary calculations. (5)
Case: 02
Pak beverages limited deals in the production and distribution of cold drinks. To expand its distribution channel, management of the company decided to renovate its ware house distribution system through out the country. Feasibility report of the project shows that the project will cost $ 150 million and would save $ 40 million per year after taxes over the next 7 years.
The company has a target debt – to – equity ratio of ¼. The equity and debt finances will cost the company 24% and 13% respectively. The tax rate is 32%.
Analyzing the above data, would you suggest to the management of the company to go for the project. Your suggestion should be supported by all necessary calculations. (5)

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