Dillinger Plc has the following capital structure: Equity: Ordinary shares - £1,000,000 issued with a nominal value of £0.20 and a market value of £0.65 Preference Shares - £260, 000 issued with a nominal value of £0.45 and a market value of £0.40. The annual (recurring) dividend of 8.5% has just been paid. Debt: Bonds - £100, 000 of 6% irredeemable bonds with a market value of £104 per £100. The annual interest payment has just been made. • The company pays corporation taxation at the rate of 30%. • The risk-free rate of return is estimated to be 2% and the market rate of return is estimated to be 2.55 times the risk-free rate. • The beta is 0.8. Calculate the after-tax cost of capital for Dillinger Plc.
Dillinger Plc has the following capital structure: Equity: Ordinary shares - £1,000,000 issued with a nominal value of £0.20 and a market value of £0.65 Preference Shares - £260, 000 issued with a nominal value of £0.45 and a market value of £0.40. The annual (recurring) dividend of 8.5% has just been paid. Debt: Bonds - £100, 000 of 6% irredeemable bonds with a market value of £104 per £100. The annual interest payment has just been made. • The company pays corporation taxation at the rate of 30%. • The risk-free rate of return is estimated to be 2% and the market rate of return is estimated to be 2.55 times the risk-free rate. • The beta is 0.8. Calculate the after-tax cost of capital for Dillinger Plc.
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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Dillinger Plc has the following capital structure:
Equity:
Ordinary shares - £1,000,000 issued with a nominal value of £0.20 and a market value of £0.65
Debt:
Bonds - £100, 000 of 6% irredeemable bonds with a market value of £104 per £100. The annual interest payment has just been made.
• The company pays corporation
• The risk-free
• The beta is 0.8.
Calculate the after-tax cost of capital for Dillinger Plc.
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