Reference no: EM132758696
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.