Estimate metcos weighted average cost of capital

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Reference no: EM133491858

Question: METCO has an issued capital of 158 million shares currently trading at $4.70 and the shares have a beta of 1.05. The company also has 1.75 million preference shares on issue. These have a face value of $100, a remaining term to maturity of four years and carry a fixed dividend of 8% p.a., paid semi-annually. The preference shares are currently trading at a yield of 5.5% p.a. and a price of $108.87 each. Aside from bank debt of $210 million bearing an interest rate of 4.5% p.a., METCO also has 2.5 million semi-annual coupon bonds on issue, each with a face value of $100, and carrying a coupon of 6% p.a. The bonds have a remaining term to maturity of two years and are trading at a yield of 4.2% p.a. and a price of $103.42 each.

The risk-free rate is 1.5% p.a., the market risk premium is 6.5% and the corporate tax rate is 30%. Estimate METCO's weighted average cost of capital (WACC).

Reference no: EM133491858

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