Reference no: EM133020364

LLB ltd was incorporated and operates in the Republic of Uganda. At the end of the financial year 2019/2020, LLB ltd.'s Financial statements extract indicated the following. Long-term debt 3 years bank loan of Ugx 300,000,000 which was borrowed at CBR plus 4.0 %.

• 8 % bonds worth Ugx 170,000,000 with a current market price per bond of Ugx 122.
• 10 % bond worth Ugx 150,000,000, which is repayable at par, in 5 years with a current market price per bond of Ugx 80 Equity
• The ratio of LLB's total equity to and debt = 50:50
• The Beta value of LLB shares [Beta Equity] = 1.45
• The current CBR in Uganda = 9.5%
• LLB pays tax at the rate of = 30%

Average National Parameters (ANP)

• Cost of debt 15.50 %
• Risk-free return 4.52 %
• Market return 10.61 %

You are required:

a) Estimate LLB's Cost and the market value of each debt

b) Comment on your results in "a" above

c) Using the ANP figures, estimate LLB's Weighted Average Cost of Capital

d) Using Capital Asset Pricing Model (CAPM) or Dividend Valuation Model (DVM) is irregular in computing the cost of equity (Ke). Do you agree? Give reasons