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Calculate the weighted average cost of capital

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Reference no: EM133012054

Question - Assume the following information for a company: There are 9 million ordinary shares. The beta of the shares is -0.4, the risk-free rate is 3% pa and the return on the market is 12% pa. The shares last traded at $10.00 per share.

An overdraft of $15 million attracts an interest rate of 6% pa compounded monthly.

90-day bank bills have just been issued with a Face Value of $10m and yield of 4% pa.

The company accounts show $8m in retained earnings and $6m in trade credit (accounts payable).

Perpetual Preference shares exist which pay an annual a dividend of $0.30 and are currently trading at $3.60. There are 4m of these preference shares on issue.

The corporate tax rate is 30%.

Calculate the Weighted Average Cost of Capital on an after-tax basis. What limitations apply to the use of this WACC?

Reference no: EM133012054

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