QUESTION TWO

QUEEN Plc has the following capital structure:

Capital K$000$

Ordinary shares $$ K$0\mathrm{.}256,000$

Revenue reserves $3,000$

$9\%$ preference shares at K$0\mathrm{.}52,500$

$12\%$ K$100$ Irredeemable bonds $1,000$

$10\%$ K$100$ redeemable Debentures $2,000$

$15\%$ Bank loan $1,500$

Total funds employed $16,000$

The market price of the preference shares is $75$n ex$-$div, the ordinary shares are quoted at K$1\mathrm{.}40$ ex$-$div per share. Debenture stock is quoted at K$93\mathrm{.}40$ per K$100$ nominal and will be redeemable at par in exactly $2$ years. The irredeemable bonds are trading at par.

Queen plc has a marginal rate of corporation tax of $30\%.$ The current risk$-$free rate of return is $5\%,$ the market rate of return is $13\%$ and the company has an equity beta value of $1\mathrm{.}25.$

Calculate the WACC based on the market values. TOTAL $=[20$ Marks$]$