Calculate the cost of equity and the cost of debt

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Reference no: EM131564341

Jupiter plc has the following capital structure:

Equity: 3,500,000 ordinary shares of £1 each(par value of each share), current market price £2.20 per share.

Cost of Equity

Debt: £1,000,000 irredeemable debentures at book value, currently trading at £105 each. The coupon rate is 4.5%

The current year’s dividend is 30p and the expected growth rate for dividends is 4%.

The current tax rate is 25%

Calculate the cost of equity, the cost of debt and the Weighted-average cost of capital (WACC) for Jupiter plc.

I have problem in calculating the weighting . Can someone please explain by details on how do I calculate the weightings so I can calculate the WACC properly

In the answer sheet, it is shown that

Market Value of Ordinary Shares : 7,700,000 (3,500,000x £?2.20)

Market Value of Debt : 1,050,000 ( 1,000,000 x £105? = 105,000,000)

or the answer sheet is just wrong?

Reference no: EM131564341

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