Residential Investments plc, which pays corporation tax at 19 per cent, has the following capital structure: Ordinary shares: 1,000,000 ordinary shares of nominal value 100p per share. The market value of the shares is 115p ex div. A dividend of 19p per share has just been paid, and dividends are expected to grow by 6 per cent per year for the foreseeable future. Preference shares: 100,000 preference shares of nominal value 100p per share. The market value of the shares is 95p ex div and the annual net dividend of 11 per cent has just been paid. Debentures: £150,000 of irredeemable debentures with a market price of £111 per £100 block. These debentures have a coupon rate of 10 per cent and the annual interest payment has just been made. a)Calculate the cost of equity of Residential Investments plc. b)Calculate the cost of preference shares of Residential Investments plc. c)Calculate the after-tax cost of debt of Residential Investments plc. d) Calculate the WACC of Residential Investments plc.
Residential Investments plc, which pays corporation tax at 19 per cent, has the following capital structure:
Ordinary shares:
1,000,000 ordinary shares of nominal value 100p per share. The market value of the shares is 115p ex div. A dividend of 19p per share has just been paid, and dividends are expected to grow by 6 per cent per year for the foreseeable future.
100,000 preference shares of nominal value 100p per share. The market value of the shares is 95p ex div and the annual net dividend of 11 per cent has just been paid.
Debentures:
£150,000 of irredeemable debentures with a market price of £111 per £100 block. These debentures have a coupon rate of 10 per cent and the annual interest payment has just been made.
a)Calculate the
b)Calculate the cost of preference shares of Residential Investments plc.
c)Calculate the after-tax cost of debt of Residential Investments plc.
d) Calculate the WACC of Residential Investments plc.
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