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Question - You have been hired by Omnic Enterprises, an electronics manufacturer, to assist in determining their cost of capital for capital budgeting decisions. Two years ago, the company issued 2,000 5-year bonds with a face value of $1 million each. The bonds pay a semi-annual coupon of 5% p.a. and are currently trading at a yield of 4.2% p.a. with semi-annual compounding. Omnic's equity capital consists of 168 million ordinary shares, which are trading at $25 per share, and 55 million preference shares, which are trading at $18 per share. The ordinary shares have a beta of 1.4 and the preference shares pay an annual dividend of $0.90. Answer the following questions, given that the expected return on the market portfolio is 9% p.a., the risk free interest rate is 2% p.a., and the corporate tax rate is 30%.
What is the market value of Omnic's debt?
What is the cost of equity for Omnic's ordinary shares?
What is the cost of equity for Omnic's preference shares?
What is Omnic's WACC?
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