Question

The Northern Lights Inc. Statement of Financial Position (including notes) reveals the following financing sources:
⦁   500,000 Ordinary shares - the current share price is $1.10 and next periods dividend is expected to be $0.11 and they are expected to grow at a constant rate of 5%
⦁   100,000 Preference shares - these are valued at $1.00 each with a required return of 12%.
⦁   $500,000 retained earnings - the opportunity cost of retained earnings has been calculated to be 14%.
⦁   5,000 debentures yielding 8% and valued at $98.

Given a tax rate of 40%, calculate the WACC for Northern Lights.

Answer 1