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What is KLs cost of ordinary shares based on the CAPM

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Question - The following information relates the KL Corporation Ltd.

KL has 80,000 bonds outstanding with a face value of $100 each, which have 5 years to maturity. The market value of these bonds is $11 million. KL's marginal corporate tax rate is 30%. M has given KL a debt rating of BBB. The following table shows the current risk premium based on the debt rating. The current yield on long-term Commonwealth Treasury bonds is 3%.

KL has 2.5 million preference shares on issue, which are currently trading for $2.40 each. They pay an annual dividend of 36 cents.

KL has 4 million ordinary shares on issue, which are currently trading for $12.80 each. The beta on these shares is 1.5. The market risk premium is 10%.

Required -

(a) What is KLs' after-tax cost of debt?

(b) What is KLs' cost of preference shares?

(c) What is KLs' cost of ordinary shares based on the CAPM?

(d) What is KLs' WACC?

Reference no: EM132784789

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