I am currently working through example 9 and am stuck with calculating the ke for the equity and cost of debt for the debentures. Also I do not understand the formula for the weighted average cost of capital.
I started to follow the formula for ke, but could not calculate g.
I tried to follow the answer example to the debentures; is there a formula?
I did not understand the calculations for the formula for WACC. Can you help?
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AFM -Chapter 6 - The Cost of Capital - Example 9
7y ago#1It seems that you are maybe using the lecture notes without watching the lectures.
I work through all of the examples in the lectures and explain and expand on the lecture notes.
As far as the formula for Ke, you do not need to calculate g because the question says that the dividend is constant and therefore the rate of growth is zero.
As far as the debentures are concerned, then yes there is a formula when they are irredeemable debentures and again I explain in the lectures when working through the earlier examples in this chapter.
There is no point at all in using the notes without watching the lectures. If you are not watching the lectures then you need to buy a Study Text from one of the ACCA approved publishers and study from there.
If you are still unsure after watching all the lectures on this chapter, then watch the Paper FM (was Paper F9) lectures on the cost of capital, because this is all purely revision from Paper FM (which presumably you have either already passed, or were exempted and had therefore studied it at university).
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