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The company''s weighted cost of capital

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Reference no: EM13287601

Question 1 ; Hildy is a company that commenced operations many years ago. relevant details relating to the company's capital structure are extracted from its balance sheet as follows :

Components - Debentures ($100 par, 12% coupon-annual) Book Value $4,000,000

Components - Preference Shares ($3 par, 7% cumulative) Book Value $1,500,000

Components - Ordinary Shares ($1 par) Book Value $7,500,000

market yield on the debentures is 15%. Current price of debenture is $94. preference shares are trading on the market at $3.00, and a dividend of 21c per share has just been paid. forecasts in relation to market returns are as follows : expected risk-free rate of return =5%; expected return on the market porfolio = 15.0%; and the systematic risk of Hildy ordinary shares is 0.6. These shares are traded on the market at $1.2 each. Tax rate is 30%

Calculate the following : Cost of debt

Cost of preference shares

Cost of ordinary shares

The company's weighted cost of capital (WACC)

 

Reference no: EM13287601

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