Section C ? Case study CLO C3,C4 Elite Group is Studying acquiring a steel plant

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Section C ? Case study CLO C3,C4 Elite Group is Studying acquiring a steel plant. The following financing scheme is proposed in order to finalize this acquisition: Bond issuance (60%: Elite will be contemplating selling bonds worth of 30-year, 1.5% coupon bonds with a par value of AEDS5,000. Because current market interest rates are greater than 1.5%. the firm must sell the bonds at AED4880, knowing that the floating costs are 1%. 2. Preferred Stocks (13%): Preferred stock can be issued with an expected sell price at 21-per share value. The cost of issuing and selling the stock is expected to be AED0.5 per share. The dividend is AED3 (14.3% x AED21). The net proceeds price (Np) is AED19 (21-2). 3. Common Stocks (27%): The cost of commons stocks has been provided and equaling 20%. During the joint meeting between Elite Group and the steel plant representatives, a debate has been raised between the two panics on the cost of such financial scheme. While the ones are presenting a cost of about 8.7%. the others are projecting a 13.13% cost. Being an external financial consultant, you are requested to give your argumentation on both calculation and present the correct overall cost calculation.

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