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Star Ltd has come to you for advice on the following issues related to cost of capital. Advice.
a) The preferred stock of the company has a par value of sh. 8. The dividend to the shareholders is at the rate of 15% and the stock is currently selling at par. What is the cost of preferred stock?
b) The company has just issued a dividend of sh. 6 per share on its common stock. The company is expected to maintain a constant 12% growth rate in its dividends indefinitely. If the stock sells for sh. 30 per share, what is the cost of equity?
c) The company has an outstanding debt of sh. 50M with a par value of sh. 1000 per bond. The annual interest payments are 15%. Assuming a tax rate of 30%, determine the cost of debt.
d) The current capital structure is 50%, 30% and 20% respectively for equity, debt and preferred stock. Compute the weighted average cost of capital.
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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