Answer to Question #240364 in Economics for Mwila

Question

(a) Company A is funded as follows:

Balance Sheet Extract

Ordinary Shares (50n) K 2000

12% Loan Notes 1500

8% Preference Shares (K1) 500

Details on these are as follows:

The company has an equity beta of 1.2. Government bonds are currently trading at 6% and the average market risk premium is 7%.

The Loan notes are currently trading at K106 per K100 note (and assume that the before tax cost of debt is now 10%).

The preference shares are trading at K0.92.

The current share price is K1.25.

The tax rate is 30%.

Calculate the Weighted Average Cost of Capital

(b) Company B currently has 5 million preferred shares outstanding. The shares have a par value of K22.50 per share and their current price is K25 per share. B’s tax rate is 40% and flotation costs on a new issue of preferred shares are 5%. 

What per-share dividend are the preferred shares paying if the component cost of the preferred shares in a weighted average cost of capital calculation is 8.25%?

Answer 1

Dear Mwila, your question requires a lot of work, which neither of our experts is ready to perform for free. We advise you to convert it to a fully qualified order and we will try to help you. Please click the link below to proceed: Submit order