Question - International Foods have the following capital structure:
|
Book Value (sh.)
|
Market Value(sh)
|
|
Equity capital (2.5 million shares of sh. 10 par)
|
25,000,000
|
45,000,000
|
|
Preference capital (50,000 shares of sh,100 par) carrying 13% dividend
|
5,000,000
|
4,500,000
|
|
Retained earnings
|
15,000,000
|
|
|
Debentures (150,000) of sh. 100 par
|
15,000,000
|
14,500,000
|
|
Total
|
60,000,000
|
64,000,000
|
The expected dividend per share is sh.1.40. The dividend per share is expected to grow at a rate of 8% forever. Preference shares are redeemable after five years, whereas debentures are redeemable after 5 years. The tax rate for the company is 30%. Calculate the WACC for the existing capital structure using market values of the sources of capital.