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Good day sir. I was wondering if you’d be able to explain the following discrepancy to me in BKB Co (amended) (December 2012).
Market Value for Ordinary Shares: $5; Cost of cap: 10%; MV*Cost = 0.5
Market Value for Preference Shares: $0.625; Cost of cap: 8%; MV*Cost = 0.05
Market Value for Loan Notes: $105; Cost of cap: 6.43%; MV*Cost = 6.7515Sum of Market Val: 110.625
Sum of MV*Cost: 7.3015WACC: 7.3015/110.625 which gives us 6.60%
However, the BPP Kit has the solution for WACC as 9.4%. Not sure where I went wrong thanks in advance.
Market Value for Ordinary Shares: $5; TMV $5 * 25 =125m = Cost of cap: 10%;
Market Value for Preference Shares: $0.625; TMV 6.25m Cost of cap 8%
Market Value for Loan Notes: $105; TMV = 21m (20 * 1.05) Cost of cap: 6.43%
125 0.82 of your finance is costing 10% = 8.2
6.25 0.04 of your finance is costing 8% = 0.32
21 0.14 of your finance is costing 6.43% = 0.9 = 9.4%
These 3 MV come to
152.25Understood sir. Could you clarify:
0.82
0.04
0.14
Thanks. Not sure how those factor into the calculation.
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