Reference no: EM132928732

Question - The financial structure of Australian  companies  Defence Supplies include:

2,400 unsecured notes on issue, and a $80 coupon payment ($40 paid semi-annually). The $1,000 face value notes mature in 11 years, and are currently trading at a price of $980.

1,600 debentures which mature in 8 years and have a current market price of $1,115. The debentures have a face value of $1,000 and pay a coupon payment of $112 annually.

5,000 issued shares of preferred stock, with current market price of $96.70 and an annual dividend of $11.50.

80,000 ordinary shares with a current market price of $45. The company has picked up some contracts over the last few years, with growth in earnings averaging 8.2 per cent per year. It is expected with current opportunities that this growth might continue for two more years, but then slow to 3 or 4%.The company directors have just paid a dividend of $4.34 per share for the last 12 months.

The Reserve Bank of Australia has suggested that inflation rates are expected to be stable at about 2%. The corporate tax rate faced by Australian Defence Supplies is 27.5%.

Required - What is the cost of capital of Australian Defence Supplies?