The risk-free rate is 1.5% p.a., the market risk premium is 6.5% and the corporate tax rate is 30%.Estimate METCO's weighted average cost of capital (WAC.

METCO has an issued capital of .153 million shares currently trading at $4.70 and the shares have a beta of1.05. The company also has 1.75 million preference shares on issue. These have a face value of $100, a remaining term to maturity of fouryears and carry a fixed dividend of 3% p.a., paid semi-annually. The preference shares are currently trading at a yield of 5.5% p.a. and a price of $108.37 each. Aside from bank debt of $210 million bearing an interest rate of 4.5% p.a., METCO also has 2.5 million semi-annual coupon bonds on issue, each with a face Value of $100, and carrying a coupon of 6% p.a. The bonds have a remaining term ho maturity of two years and are trading at a yield 014.2% p.a. and a price of $103.42 each.

Answer rating: 100% (QA)

To estimate METCOs weighted average cost of capital WACC we need to calculate the cost of equity and the cost of debt Then we can use the WACC formula ... View the full answer