Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance between risk and cost of capital. Its financial partners will provide unlimited financing at an annual interest rate of 10% as long as its target capital structure is 25% debt, and 75% common equity. Last year the company paid a dividend of $2.25 per share and the constant growth rate is expected at 4.5%. The current price on the stock market is $14.7 per share. Their corporate tax rate is 32%. They are looking to invest in mining locations in two areas, one in South Africa, and the other in Australia. The rate of return for the two locations is expected to be 12% and 16% respectively. Assume that all of its potential projects are equally risky and as risky as the firm’s other assets. Calculate Glencore’s cost of common equity?
Glencore is the largest mining corporation in the world with annual revenues of $220 billion dollars, their headquarters are located in the UK and Switzerland. In financing new mining locations, the corporation uses both debt and equity financing to provide a favorable balance between risk and cost of capital. Its financial partners will provide unlimited financing at an annual interest rate of 10% as long as its target capital structure is 25% debt, and 75% common equity. Last year the company paid a dividend of $2.25 per share and the constant growth rate is expected at 4.5%. The current price on the stock market is $14.7 per share. Their corporate tax rate is 32%. They are looking to invest in mining locations in two areas, one in South Africa, and the other in Australia. The
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