Reference no: EM132539713
Always A Winner Ltd. is considering expanding its gambling network. The Managing Director of the company, Mr GG, has offered you a good tip for the races if you could provide information on the appropriate 'discount rate' for calculating the viability of the proposed project. To help you with your calculations, he has tabled the following extracts from the company's latest Financial Statements
Selected Financial data as at 31 December 2015:
SHAREHOLDERS FUNDS
Ordinary shares Issue price $1.00 each, fully paid............................................20,000,000
10% Preference shares Issue price $2.00 each, fully paid ............................15,000,000
Retained Profit .......................................................................................................................14,500,000
LIABILITIES
Debentures......................................................................................................................30,000,000
Bank Overdraft..................................................................................................................7,000,000
Provision for Long Service Leave.............................................................................10,000,000
Additional Information:
- 30,000 debentures have been issued with a coupon rate of 8%. They will mature in 4 years' time. Similar debentures are currently yielding 12%.
- The bank overdraft carries an interest rate of 12%. Interest is charged quarterly.
- The current dividend paid is 12 cents per share. This dividend is expected to grow indefinitely at 5% per annum.
- The expected market return on Always A Winner ordinary shares is 11%.
- The risk free rate of interest is 6%.
- The current market price of the Preference Shares $1.50.
- The company tax rate is 30 %.
Required
Question 1: Calculate the weighted average cost of capital (to 2 decimal places). Show all workings and steps.