Could you help me with calculation of cost of debt which is 8,13%, i can see that was made excel calculation but can't understand. Maybe someone can explain through formula.
Could you help me with calculation of cost of debt which is 8,13%, i can see that was made excel calculation but can't understand. Maybe someone can explain through formula.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Could you help me with calculation of cost of debt which is 8,13%, i can see that was made excel calculation but can't understand. Maybe someone can explain through formula.
Transcribed Image Text:A
Particulars
2 Value of ordinary shares
200000
3 Value of preference share
300000
4 Value of bonds
650000
5 Value of bank notes
560000
6 Total of financing
=SUM(B2-B5)
7 Weight of equity
=B2/SBS6
8 Weight of preference shares =B3/SBS6
9 Weight of debt
=B4/SBS6
10 Weight of bank notes
=B5/SBS6
11 Cost of preference share
0.07
0.09
12 Cost of bank notes
WACC
13
=B7*E12+B8*B11+B9*E7+B10*B12
B
Values
E
Calculating cost of debt
105
0.09
8 yearrs
100
|=RATE(8,100*E3.-E2₂E5)
Price of bond
Coupon rate
Time to maturity
Par value
Cost of debt
After tax cost of debt =E6*(1-30%)
Cost of Equity
Risk free rate
0.07
Beta
1.21
Equity risk premium
0.091
Cost of Equity
=E9+E10*E11
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are given the following information about Jordan plc:
Financial position statement at January 2017
£000 £000
Non-current assets 1,511
Current assets 672
Total assets 2,183
Equity finance
Ordinary shares (50p) 200
Reserves 150
Non-current liabilities
7% preference shares 300
9% bonds (redeemable after 8 years) 650
9% bank notes 560
Current liabilities 323
Total liabilities 2183
You are also given the following information:
• Yield on Treasury bills 7%
•Jordan plc equity beta 1.21
• Equity risk premium 9.1%
• Current ex-div ordinary share price £2.35
• Current ex-div preference share price 66p
• Current ex-interest bond price £105
• Corporate tax rate 30%
Required:
(a). calculate the company's weighted average cost of capital (WACC) using market weightings.
(b). critically discuss whether you consider that companies, by integrating a sensible level of gearing
into their capital structure, can minimise their weighted average cost of capital.
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are given the following information about Jordan plc:
Financial position statement at January 2017
£000 £000
Non-current assets 1,511
Current assets 672
Total assets 2,183
Equity finance
Ordinary shares (50p) 200
Reserves 150
Non-current liabilities
7% preference shares 300
9% bonds (redeemable after 8 years) 650
9% bank notes 560
Current liabilities 323
Total liabilities 2183
You are also given the following information:
• Yield on Treasury bills 7%
•Jordan plc equity beta 1.21
• Equity risk premium 9.1%
• Current ex-div ordinary share price £2.35
• Current ex-div preference share price 66p
• Current ex-interest bond price £105
• Corporate tax rate 30%
Required:
(a). calculate the company's weighted average cost of capital (WACC) using market weightings.
(b). critically discuss whether you consider that companies, by integrating a sensible level of gearing
into their capital structure, can minimise their weighted average cost of capital.
חו
W
Cornerstones of Financial Accou...
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
BUY
Chapter 9: L...
Problem 103.10
[B]Not helpful? See similar books
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homework?
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