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Calculate empire cost of preference shares and cost of debt

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Reference no: EM132957183

Empire (Pty) Ltd is a company that is in the business of supplying virtual gaming products. Established in 2010, Empire (Pty) Ltd is one of the most successful gaming operators in the world, operating in countries around the globe, and is considered the home of virtual sports.

Empire's current capital structure consists of the following:

  • 5 000 000 ordinary shares of R1 each, currently trading at R50 on the JSE
  • The ordinary shareholders require a premium of 12.2% in addition to the risk free rate to compensate them for taking on the risk of investing in the company
  • 1 000 000 10% redeemable in 5 years preference shares (paid annually) of R1 each, currently trading at R1.50 on the JSE
  • 50 000 8% debentures (paid annually) currently trading at R80 each, with a nominal value of R100 redeemable in 5 years
  • The company tax rate is 30%
  • The return on government bonds is 9.2% at present

Problem 1: Calculate the company's current debt/equity ratio at market values.

Problem 2: Calculate the company's cost of equity using the information in the above scenario only.

Problem 3: Calculate Empire's cost of Preference shares and cost of Debt.

Problem 4: Calculate Empire's weighted average cost of capital (WACC) using the information provided in the above scenario only.

Reference no: EM132957183

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