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What is the market value of Saturn bonds

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Question - The following information relates to the Saturn Mining Corporation Ltd. Saturn has 100,000 bonds outstanding with a face value of $100 each, which have 3 years to maturity and pay an-annual 5% coupon. The yield on the bonds is 4% p.a. Saturn's marginal corporate tax rate is 30%.

Saturn has 3 million preference shares on issue, which are currently trading for $2.75 each, giving a total market value of $8.25 million. They pay an annual dividend of 10 cents.

Saturn has 7 million ordinary shares on issue, which are currently trading for $5.00 each, giving a total market value of $35 million. These shares are expected to pay an annual dividend of $0.50 next year, and this dividend is expected to grow at a constant rate of 2% in perpetuity.

Required -

a) What is the market value of Saturn's bonds?

b) What is Saturn's cost of preference shares?

c) What is Saturn's cost of ordinary shares?

d) What is Saturn's WACC?

Reference no: EM132860633

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