[Chomba]

TLC plc has the following capital structure:

$’000
Ordinary shares – $0.40 5,000
Retained earnings 500
10% Preference shares at $11,500
10% $100 redeemable debentures 3,000
Total funds employed 10,000

The market price of the preference shares is 80cents ex-div, the ordinary shares are quoted at $1.62 cum-div per share. Debenture stock is quoted at $97.5 ex-interest per $100 nominal and will be redeemable at par in exactly 7 years’ time.
TLC plc has just declared dividend of $1,500,000 in total for all issued ordinary shares. The dividend growth rate is 4% per year forever. Company tax is 30% per year. The market rate of return is 12% and the company has an equity beta value of 1.25
Required:
a) Calculate WACC based on market values.
b) Discuss the implications of using a wrong WACC value in project appraisal and comment on the current level of capital gearing

[Chomba]

That’s is what iam doing. Self study we came be study buddies

[Author]

Posts