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Hi John,
I have been working on Question 31 and I am lost with the answer for part A when it comes to the “preference shares” element of the WACC calculation. Can you clarify how the MV and cost % have been arrived at?
The cost is calculated in the same way as ordinary shares with a constant dividend.
The dividend is 6% of nominal, so 6% x 0.75 = $0.45 per share.
Therefore the cost of preference shares is 0.45/0.64 = 7.03%The total nominal value of the shares (from the SOFP) is $6M.
The nominal value is $0.75 per shares, so therefore there are 6M/0.75 = 8M shares in issue.
The market value is $0.64 per share, so the total MV is 8M x $0.64 = $5.12M
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