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Calculate the effective after tax WACC

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Question - Londoni Kokowe Chombo PLC one of the companies listed on the LuSE wishes to calculate its updated weighted Average cost of capital for use in their investment appraisal process. ZMK'

Million

Issued share capital (K100 shares) 2,000

Share premium 1,300

Reserves 145

Share Holders funds 3,445

6% irredeemable Debentures 1,400

9% Redeemable debentures 1,450

Bank loan 500

Total Long-term liabilities 3,350

The current cum interest market value per K100 unit is K103 and K105 for the 6% and 9 % debentures respectively. The 9% debenture is redeemable at par in 10 years' time. The bank loan bears interest rate of 2% above the base rate (current base rate is 15%). The current ex-div market price of shares is K1,100 and a dividend of K100 per share which is expected to grow at a rate of 5% per year has just been paid. The effective corporation tax rate for Londoni Kokowe Chombo PLC is 30%.

Required - Calculate the effective after tax Weighted Average Cost of Capital (WACC) for Londoni Kokowe Chombo PLC.

Reference no: EM133078443

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