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Calculate the market value weighted average

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Yamate Limited wishes to calculate its weighted average cost of capital and the following information relates to the company at the current time:

Number of ordinary shares 20 million

Book value of 7% convertible debt $29 million

Book value of 8% bank loan $2 million

Market price of ordinary shares $5.50 per share

Market value of convertible debt $107.11 per $100 bond

Equity beta of the company 1.2

Risk-free rate of return 4.7%

Equity risk premium 6.5%

Rate of taxation 30%

After tax cost of convertible debt. 6%

The company expects share prices to rise in the future at an average rate of 6% per year. The convertible debt can be redeemed at par in eight years' time or converted in six years' time into 15 shares per $100 bond.

Calculate the market value weighted average cost of capital of the company. State clearly any assumptions that you make.

Reference no: EM132758707

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