Understanding the capital structure is important for determining company value and capital budgeting for company growth and expansion.

SUR341 Coursework Brief

IDM is a Limited company currently looking to increase its attractiveness to potential investors. In order to do so, it is looking for analysis undertaken to examine its overall capital structure and cost of capital (both debt and equity).

Based on the following information, you must:

1. Determine the optimal capital mix of IDM to help them benchmark potential investor returns through their weighted capital.

1. Determine the return required to remain attractive and keep investors happy.

IDM market and accounting information

· Current market value of debt and equity accumulate to £1,760,000

· Cost of equity is 7.75%

· Cost of debt is 12.60%

· The current tax rate is 13.5%

· IDM shares are trading at £1.67

· The latest interim dividend for the IDM shares is 16p

· There is a floatation cost of issuing new shares is 10%

 

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