Calculate the WACC for the existing capital structure

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Reference no: EM132148871

Question - International Foods have the following capital structure:

	Book Value (sh.)	Market Value(sh)
Equity capital (2.5 million shares of sh. 10 par)	25,000,000	45,000,000
Preference capital (50,000 shares of sh,100 par) carrying 13% dividend	5,000,000	4,500,000
Retained earnings	15,000,000
Debentures (150,000) of sh. 100 par	15,000,000	14,500,000
Total	60,000,000	64,000,000

The expected dividend per share is sh.1.40. The dividend per share is expected to grow at a rate of 8% forever. Preference shares are redeemable after five years, whereas debentures are redeemable after 5 years. The tax rate for the company is 30%. Calculate the WACC for the existing capital structure using market values of the sources of capital.

Reference no: EM132148871

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