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A company has annual earnings before interest and tax of £15 million. These earnings will remain constant.

The market price of the company’s shares is 86p per share, cum div. and of debentures £105.5 per debenture, ex interest.

An interim dividend of 6p per share has been declared, tax rate is 31%, and all available earnings are distributed as dividends.

The capital structure of the firm is as follows:

Ordinary shares(25p ) £12.5 million

16% Debentures £23.697 million

Calculate the cost of capital of the company.