The following is the capital structure of Ngana Ltd: Required: Using market values, calculate the weighted average cost of capital (WACC) of Ngana Ltd

      

The following is the capital structure of Ngana Ltd:
13.png
Additional information:
1. The shareholders of Ngana Ltd. expect earnings and dividends to grow at a constant rate of 5% in
the future. The company has just paid a dividend of Sh4.00 per share.
2. The current market price of one ordinary share of Ngana Ltd. is Sh.80.
3. Treasury bonds yield 12%. The return on the market is 14%. The company's beta is 1.50.
4. New preference shares can be sold at Sh. 120 per share with a dividend of Sh. 12 per share; and
floatation costs of Sh.6 per share.
5. The corporation tax rate is 30%.
6. The company pays out all its earnings as dividends.
7. The company will sell 12% debentures with a maturity of 10 years at Sh.90 per debenture. The
par value of the debenture is Sh.100.
Required:
Using market values, calculate the weighted average cost of capital (WACC) of Ngana Ltd

  

Answers


Kavungya
14.png
15.png
Kavungya answered the question on April 5, 2022 at 12:15


Next: Nice Ltd. is considering raising capital from an issue of ordinary shares and debentures in a mix that will maintain its gearing ratio constant. The company...
Previous: Digital Ltd. projects to raise Sh.50 million for construction of a new plant. After due consideration, the financial manager proposed the following three financial plans. 1....

View More CPA Financial Management Questions and Answers | Return to Questions Index


Exams With Marking Schemes

Related Questions