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.