Cost of debt = Kd =
For Old Bond interest Rate is 11% and Year to Maturity is 15 years. Further Current Price is 1555.38 and Par value is 1000$
so, Kd=
By sholwing this we get = (66-37.03)/1277.69 = 2.27%,
so Cost of Debt - Kd = 2.27%
Kp= Cost of Preference Share = Dividend Obligation/Net Proceed
Kp = 9/92.50*100 = 9.76%
and Ke = Cost of Equity
Ke = (D1/P0) + G
Where, D1 = Expected Dividend in next yea in this case 1.36
P0 = Current Share Price as reduced by flotation cost = (33.35) - (33.35*8/100) = 30.682
G= Growth rate = 9.2%
So, Ke will be = (1.36/30.682) + 9.2%
Ke = 13.63%
Particular | Formula | Cost |
Cost of Debt | ((((1000*11/100)*(1-0.4))+((1000-1555.38)/15)))/((1000+1555.38)/2)*100 | 2.27% |
Cost of Preference Share | (9/92.25)*100 | 9.76% |
Cost of Common Stock | (1.36)/(33.35-(33.35*8/100)+0.092 | 13.63% |
Now WACC Will Be Computed as follow.
WACC is counted considering Cost of particular source of Finance with respect to total Weight of that source in total Finance
Source of Capital | Weight (given) | Cost of Capital | WACC %(Weight * Cost of Capital) |
Bond | 0.580 | 2.27% | 1.32% |
Preference Share | 0.060 | 9.76% | 0.59% |
Common Stock | 0.360 | 13.63% | 4.91% |
Total | 1.000 | 6.81% |
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