Calculate boral weighted average cost of capital

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Question (i) Boral currently has $400 million market value of debt outstanding. This debt was contracted five years ago at the rate of 4%. Boral can refinance 60% of the debt at 5% with the remaining 40% refinanced at 6.5%. The company also has an issue of 2 million preference shares outstanding with a market price of $20 per share. The preference shares offer an annual dividend of $1.5 per share. Boral also has 14 million ordinary shares outstanding with a price of $30.00 per share. Boral just paid a $1.2 ordinary dividend, and that dividend is expected to increase by 5 per cent per year forever. If the corporate tax rate is 40 per cent, calculate Boral's weighted average cost of capital (WACC).

Question (ii) Discuss the limitations of WACC as a discount rate for evaluating new projects.

Reference no: EM132563885

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