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Cost of debt and Equity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cost of debt and Equity

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by AvatarMikeLittle.
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  • October 21, 2014 at 2:40 pm #205243
    Avatarmunthaliaunward
    Participant
    • Topics: 6
    • Replies: 2
    • ☆

    Kindly assist how to calculate this. its a bit confusing me.

    A company has the following capital structure: Debt 20%, Preference 28% and Equity 52%. Expected net income this year is $34,285.72 dividend payout ratio is 30% future earnings and dividends to grow at a constant rate of 9%. The co. paid a dividend of $3.6/share last year and its stock currently sells for $54/share. The Co.can obtain new capital in the following ways. i) A perpetual preference stock with an $10 dividend . currently selling for $90 but floatation cost will be 7% of mkt price.ii) Debt can be sold at 15%. (a)Determine the cost of each capital component (b) calculate WACC.

    October 21, 2014 at 2:46 pm #205245
    AvatarMikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23368
    • ☆☆☆☆☆

    Hmmm! This is a fascinating question and I thank you for exposing it to me.

    However, it’s some way beyond the wit of an F7 tutor!

    Maybe better to post this in the Ask the Tutor forum for F9 ?

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