Calculate cost associated with each new source of finance

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Reference no: EM132993375

SYPETCO Ltd is a leading company in Australia and you the below details relating to the capital structure of the company. Information concerning raising new capital

Bonds
$1,000 Face value
13% Coupon Rate (Annual Payments)
20 Term (Years)
$25 Discount offered (required) to sell new bonds
$10 Flotation Cost per bond

Preference Shares

11% Required rate to sell new preference shares
$100 Face Value
$3 Flotation cost per share

Ordinary Shares
$83.33 Current Market Price
$4.00 Discount on share price to sell new shares
$5.40 Flotation Cost per bond
$5.00 2021 - Proposed Dividend

Dividend History
$4.63 2020
$4.29 2019
$3.97 2018
$3.68 2017
$3.40 2016

Current Capital Structure
Extract from Balance

Sheet
$1,000,000 Long-Term Debt
$800,000 Preference Shares
$2,000,000 Ordinary Shares

Current Market Values
$2,000,000 Long-Term Debt
$750,000 Preference Shares
$4,000,000 Ordinary Shares

Tax Rate = 33%
Risk Free Rate =5%

Problem a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available.

Problem b) Calculate the WACC given the existing weights

Reference no: EM132993375

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