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FM, cost of capital doubt

This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.

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May 25, 2023 at 7:29 am #684981
JeLoo
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IDO Co has a capital structure as follows.
10m $0.50 ordinary shares 5
reserves 20
13% irredeemable loan notes 7
the ordinary shares are currently quoted at $3.00, and the loan notes at $90. IDO Co has a cost of equity of 12% and pays corporation tax at a rate of 30%.
What is IDO Co’s WAAC?
Doubt
In this question, the Ve has been calculated as $3*10 million shares. why is it not calculated as Ve = 10 million shares*$3/$0.50?
May 25, 2023 at 8:59 am #684998
John Moffat
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The question says that there are 10M shares (and given the nominal value is $0.50 per share, the total nominal value of all of the shares is $5m).
If there are 10m shares with a market value of $3 per share, then the total MV is $30m.
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