Barret Industries is a publicly listed company in London. The company has equity claims of £100 million (book value), and it is currently issuing 10 million shares in the financial market. The company has just paid a 40% of its earnings as dividends to the shareholders, and the company has showed earings of £2 per share. The stock of Barret is currently trading in the market at £17 per share. In addition, as Barret Industries is a geared company, it also issues corporate bonds in the financial market. The company now has 50 million units of 5% redeemable bonds which has a nominal value of £2. The bonds are currently traded in the market at £1.36 per unit. The interest is about to be paid and a premium of 3.5% is redeemable at the maturity of the bonds in 8 years' time. The corporate tax for the company is 45%. Ignore personal tax. Required: a) Calculate the cost of equity using the dividend growth model (DGM) b) calculate the after tax cost of debt c) calculate the WACC
Barret Industries is a publicly listed company in London. The company has equity claims of £100 million (book value), and it is currently issuing 10 million shares in the financial market. The company has just paid a 40% of its earnings as dividends to the shareholders, and the company has showed earings of £2 per share. The stock of Barret is currently trading in the market at £17 per share. In addition, as Barret Industries is a geared company, it also issues corporate bonds in the financial market. The company now has 50 million units of 5% redeemable bonds which has a nominal value of £2. The bonds are currently traded in the market at £1.36 per unit. The interest is about to be paid and a premium of 3.5% is redeemable at the maturity of the bonds in 8 years' time. The corporate tax for the company is 45%. Ignore personal tax. Required: a) Calculate the
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