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Calculate the weighted average cost of capital

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Reference no: EM133156247

Question - Orange plc recently paid 10% dividend on its share with a face value of 200p, currently trading at 25% premium. The dividends are expected to grow at 5% forever. The company also has zero coupon bonds, currently trading at 1250. These bonds will mature in three years and have a redemption value of $1500.

Required -

1. Estimate the cost of equity.

2. Estimate the yield to maturity of the bonds.

3. If the company has 50 m equity shares and 20,000 zero coupon bonds, calculate the weighted average cost of capital using market value weights. Assume zero tax rate.

Reference no: EM133156247

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