• Presently have bonds on issue with a face value of $1,000 that currently pay a coupon of $80 per year. These bonds currently trade at par. 
• The current risk free rate is 5% pa and the Market Risk Premium is 4% pa. 
• The firm's common equity beta is 1.2 
• There is an outstanding preference share issue. The face value of these shares is $10  but are currently trading at $8.70. The Beta of these preference shares is 0.70. These shares pay an annual dividend of 70 cents.

Questions : 

a) Determine the after tax cost of debt. 

b) Determine the cost of the ordinary shares. 

c) Determine the cost of the preference shares. 

Answer rating: 100% (QA)

a The aftertax cost of debt can be calculated as follows Coupon payment 80 Face value 100... View the full answer