Calculate Weighted Average cost of capital: 6 million $1 ordinary shares, currently trading at $4 per share.4 million 12% $2 preference shares, currently trading at $3 per share.$2 million, 14% debentures, with a current yield – to – maturity of 11%, due in 6 years.Bank loan: $1 600 000 at 16% interest rate per annum, maturing in 7 years.Additional information:The company has a beta factor of 1.5 and a risk free rate of 6%.Its tax rate is 30% and the return on market is 15%.The current dividend paid on the ordinary shares is 80 cents per share and a growth rate of 13% ismaintained.
Calculate Weighted Average cost of capital: 6 million $1 ordinary shares, currently trading at $4 per share.4 million 12% $2 preference shares, currently trading at $3 per share.$2 million, 14% debentures, with a current yield – to – maturity of 11%, due in 6 years.Bank loan: $1 600 000 at 16% interest rate per annum, maturing in 7 years.Additional information:The company has a beta factor of 1.5 and a risk free rate of 6%.Its tax rate is 30% and the return on market is 15%.The current dividend paid on the ordinary shares is 80 cents per share and a growth rate of 13% ismaintained.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Calculate Weighted Average cost of capital: 6 million $1 ordinary shares, currently trading at $4 per share.
4 million 12% $2
$2 million, 14% debentures, with a current yield – to – maturity of 11%, due in 6 years.
Bank loan: $1 600 000 at 16% interest rate per annum, maturing in 7 years.
Additional information:
The company has a beta factor of 1.5 and a risk free rate of 6%.
Its tax rate is 30% and the return on market is 15%.
The current dividend paid on the ordinary shares is 80 cents per share and a growth rate of 13% is
maintained.
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