Amcor Limited, a packaging company just issued preference shares, bonds and ordinary shares to finance its capital expenditures. Amcor issued 100,000 preference shares at a price of $75 per share. The estimated flotation cost is $5 per share. The company intends to pay a preference dividend of $8 per share. In addition, Amcor has issued three bonds with the following characteristics: BOND COUPON Book Value $M Market Value $M YTM 1 6.55% 500 550 6.50% 2 7.25% 485 420 7.30% 3 7.65% 200 250 6.20% Also, Amcor has issued 80 million ordinary shares with a book value of $38 per share and a market price of $50 per share. Amcor has an estimated beta of 0.95. The current yield on Treasury Bills is 5%, and the market return is 12%. The corporate tax rate is 30%. Calculate: Cost of preferenceshares Cost ofdebt Cost of ordinaryequity The weighted average cost of capital
Amcor Limited, a packaging company just issued
|
BOND |
COUPON |
Book Value $M |
Market Value $M |
YTM |
|
1 |
6.55% |
500 |
550 |
6.50% |
|
2 |
7.25% |
485 |
420 |
7.30% |
|
3 |
7.65% |
200 |
250 |
6.20% |
Also, Amcor has issued 80 million ordinary shares with a book value of $38 per share and a market price of $50 per share. Amcor has an estimated beta of 0.95. The current yield on Treasury Bills is 5%, and the market return is 12%. The corporate tax rate is 30%.
Calculate:
- Cost of preferenceshares
- Cost ofdebt
- Cost of ordinaryequity
- The weighted average cost of capital
Step by step
Solved in 5 steps
