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A$29$

$f_x$

THIS WORKSHEET IS THE QUESTION & TEMPLATE GIVEN TO STUDENTS

Question $1(20$ Marks$)$

John is the Financial Manager of Alberta Company. He knows that he will have to determine the cost of capital to help the firm making decisions for the new project. Thus, he combines all the details related to the company's cost of capital as follows.

$10-$year bank loan with annual percentage rate $($APR$)$ of $8\mathrm{.}5\%.$

$15-$year bond at $$1,000$ par issued $3$ years ago, paying interest at a rate of $5\mathrm{.}5\%$ per year $($with semiannual payment$)$ and the market price of $$1,250.$

Preferred stock paying a $10\%$ dividend from par value of $$40$ with its current market price of $$24.$

Common stock is currently selling for $$50$ per share and the firm paid a $$2$ dividend last year. Dividends are expected to continue growing at the same rate of $8\%$ into the indefinite $|$ future.

Tax rate is $35\%.$

$\backslash$table$[[$Financing Source,Market Value $($$ Million$)],[$Bank Loan,$150],[$Bond$,300],[$Preferred Stock,$150],[$Common Stock,$550]]$

$\backslash$table$[[$Q$.1\mathrm{.}2(2$ marks$),],[,,$Mark$],[$Dps$,,0\mathrm{.}5],[$Pcs$,,0\mathrm{.}5],[$Kps$,,1]]$

$1\mathrm{.}1$ Compute the cost of bond. $(4$ marks$)$

$1\mathrm{.}2$ Compute the cost of preferred stock. $(2$ marks$)$

$1\mathrm{.}3$ Compute the cost of common stock. $(4$ marks$)$

$1\mathrm{.}4$ Compute WACC. $(10$ marks$)$

$\backslash$table$[[$Q$.1\mathrm{.}3(4$ marks$),],[,,$Mark$],[$D ${?}_0,,1],[$D$1,,1],[$Pcs$,,0\mathrm{.}5],[$g$,,0\mathrm{.}5],[$Kcs$,,1],[,,4]]$

$\backslash$table$[[$Q$.1\mathrm{.}4(10$ marks$),],[$Source of Capital,Market Value $($S Million,Weight,$],[$Bank Loan,,,$],[$Bond$,,,],[$Preferred Stock,,,$],[$Common Stock,,,$],[$Total Value,,,$]]$