Kapendo ltd is a highly geared company with the following optimal capital structure. Equity capital is...
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Kapendo ltd is a highly geared company with the following optimal capital structure. Equity capital is twice the value of preference capital • Debt finance is equal to the value of equity capital plus preference share capital • Debt finance includes debentures 70% and long term loan 30% Other information . a) (i) Equity capital dividend rate is 10% and growth rate is 2.5% p.a. par value of ordinary share is sh.15 and market value is shs20. (ii) Debentures interest rate is 14% p.a .par value is 100 each and market value is sh. 95 (iii) Preference shares are currently trading at shs. 18 and the par value per share is shs. 12 per share (iv) Interest rate for the term loan is 17% p.a. (v) Corporation tax rate is 30% Required: Calculate the weighted average cost of capital (WACC) (10 Marks) Kapendo ltd is a highly geared company with the following optimal capital structure. Equity capital is twice the value of preference capital • Debt finance is equal to the value of equity capital plus preference share capital • Debt finance includes debentures 70% and long term loan 30% Other information . a) (i) Equity capital dividend rate is 10% and growth rate is 2.5% p.a. par value of ordinary share is sh.15 and market value is shs20. (ii) Debentures interest rate is 14% p.a .par value is 100 each and market value is sh. 95 (iii) Preference shares are currently trading at shs. 18 and the par value per share is shs. 12 per share (iv) Interest rate for the term loan is 17% p.a. (v) Corporation tax rate is 30% Required: Calculate the weighted average cost of capital (WACC) (10 Marks)
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To calculate the weighted average cost of capital WACC we need to determine the cost of each component of the capital structure and their respective w... View the full answer
Related Book For
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves
Posted Date:
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