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Estimate the weighted average cost of capital for KND Ltd

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Reference no: EM133093559

Question - The following figures have been extracted from the financial statements of KND Ltd:

Book Value of Current Assets $45 million and Current Liabilities $34.75 million

11% Debentures: $27 million debentures issued at $1,000.

Long-term Loan: $7.18 million

Preference Share Capital: 8.8 million shares issued at $2 per share

Retained Earnings: $28.30 million

Ordinary Share Capital: 39 million shares issued at $1 per share

General Reserves $9.20 million

The following additional information has been provided by the manager of the company:

Government bonds are currently yielding 6.3% per annum.

The current market return on equity is estimated to be 13.5% per annum.

Debenture coupons are paid annually, with 16 years to maturity.

The company tax rate is 34%.

The loan requires a 9% p.a. interest payment, compounded monthly.

A merchant banker suggests that KND Ltd would have to offer a rate of 13.9% p.a. on any new issue of 16-year debentures.

12% Preference shares of KND Ltd are currently traded at $3.79 per share

KND Ltd ordinary shares have recently traded at $3.61 and the company's financial manager believes that a beta of 1.7 is appropriate for the company.

Required - Using relevant information, estimate the weighted average cost of capital for KND Ltd.

Reference no: EM133093559

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