Force plc (Force) is an information technology services company listed on the London Stock Exchange which...

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Force plc (Force) is an information technology services company listed on the London Stock Exchange which is looking to expand its operations into the provision of self-service point-of-sale systems for supermarkets across Europe. The company has grown rapidly in recent years with annual dividends having seen consistent growth as follows: 2006 10.00p 2007 12.00p 2008 13.50p (a) The company expects dividends to continue to grow for the foreseeable future in line with this recent dividend profile. Extracts from the company's most recent balance sheet at 30 April 2010 are set out below: Ordinary £1 shares 5.5% £1 irredeemable preference shares Retained earnings 2009 14.50p 7% irredeemable debentures (at nominal value) 6% unsecured loan notes (at nominal value) £'000 14,000 10,000 19,400 2010 15.75p 50,000 36,000 £'000 43,400 86,000 The current ex-dividend ordinary share price is £3.50, whilst the current ex-dividend preference share price is £0.77. The irredeemable debentures have a current ex-interest market price of £86.50 per £100 debenture, whilst the unsecured loan notes have a current ex-interest market price of £84 per £100 loan note and will be redeemable at par in seven years' time. The company pays corporation tax at a rate of 28%. The company's current liabilities do not include any overdraft borrowing. Regarding the company's proposed expansion plans, the chief executive has expressed his preference for any financing requirements to come from increasing debt rather than increasing equity in order to move towards minimising the company's weighted average cost of capital. Requirements From the available information, calculate the company's weighted average cost of capital using market values. Force plc (Force) is an information technology services company listed on the London Stock Exchange which is looking to expand its operations into the provision of self-service point-of-sale systems for supermarkets across Europe. The company has grown rapidly in recent years with annual dividends having seen consistent growth as follows: 2006 10.00p 2007 12.00p 2008 13.50p (a) The company expects dividends to continue to grow for the foreseeable future in line with this recent dividend profile. Extracts from the company's most recent balance sheet at 30 April 2010 are set out below: Ordinary £1 shares 5.5% £1 irredeemable preference shares Retained earnings 2009 14.50p 7% irredeemable debentures (at nominal value) 6% unsecured loan notes (at nominal value) £'000 14,000 10,000 19,400 2010 15.75p 50,000 36,000 £'000 43,400 86,000 The current ex-dividend ordinary share price is £3.50, whilst the current ex-dividend preference share price is £0.77. The irredeemable debentures have a current ex-interest market price of £86.50 per £100 debenture, whilst the unsecured loan notes have a current ex-interest market price of £84 per £100 loan note and will be redeemable at par in seven years' time. The company pays corporation tax at a rate of 28%. The company's current liabilities do not include any overdraft borrowing. Regarding the company's proposed expansion plans, the chief executive has expressed his preference for any financing requirements to come from increasing debt rather than increasing equity in order to move towards minimising the company's weighted average cost of capital. Requirements From the available information, calculate the company's weighted average cost of capital using market values. Force plc (Force) is an information technology services company listed on the London Stock Exchange which is looking to expand its operations into the provision of self-service point-of-sale systems for supermarkets across Europe. The company has grown rapidly in recent years with annual dividends having seen consistent growth as follows: 2006 10.00p 2007 12.00p 2008 13.50p (a) The company expects dividends to continue to grow for the foreseeable future in line with this recent dividend profile. Extracts from the company's most recent balance sheet at 30 April 2010 are set out below: Ordinary £1 shares 5.5% £1 irredeemable preference shares Retained earnings 2009 14.50p 7% irredeemable debentures (at nominal value) 6% unsecured loan notes (at nominal value) £'000 14,000 10,000 19,400 2010 15.75p 50,000 36,000 £'000 43,400 86,000 The current ex-dividend ordinary share price is £3.50, whilst the current ex-dividend preference share price is £0.77. The irredeemable debentures have a current ex-interest market price of £86.50 per £100 debenture, whilst the unsecured loan notes have a current ex-interest market price of £84 per £100 loan note and will be redeemable at par in seven years' time. The company pays corporation tax at a rate of 28%. The company's current liabilities do not include any overdraft borrowing. Regarding the company's proposed expansion plans, the chief executive has expressed his preference for any financing requirements to come from increasing debt rather than increasing equity in order to move towards minimising the company's weighted average cost of capital. Requirements From the available information, calculate the company's weighted average cost of capital using market values. Force plc (Force) is an information technology services company listed on the London Stock Exchange which is looking to expand its operations into the provision of self-service point-of-sale systems for supermarkets across Europe. The company has grown rapidly in recent years with annual dividends having seen consistent growth as follows: 2006 10.00p 2007 12.00p 2008 13.50p (a) The company expects dividends to continue to grow for the foreseeable future in line with this recent dividend profile. Extracts from the company's most recent balance sheet at 30 April 2010 are set out below: Ordinary £1 shares 5.5% £1 irredeemable preference shares Retained earnings 2009 14.50p 7% irredeemable debentures (at nominal value) 6% unsecured loan notes (at nominal value) £'000 14,000 10,000 19,400 2010 15.75p 50,000 36,000 £'000 43,400 86,000 The current ex-dividend ordinary share price is £3.50, whilst the current ex-dividend preference share price is £0.77. The irredeemable debentures have a current ex-interest market price of £86.50 per £100 debenture, whilst the unsecured loan notes have a current ex-interest market price of £84 per £100 loan note and will be redeemable at par in seven years' time. The company pays corporation tax at a rate of 28%. The company's current liabilities do not include any overdraft borrowing. Regarding the company's proposed expansion plans, the chief executive has expressed his preference for any financing requirements to come from increasing debt rather than increasing equity in order to move towards minimising the company's weighted average cost of capital. Requirements From the available information, calculate the company's weighted average cost of capital using market values.

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC we need to consider the cost of each componen... View the full answer