Question

Marshal Ltd currently has $250 million of market value debt outstanding. The 9 percent coupon bonds (semiannual pay) have a maturity of 15 years and are currently priced at $877.07 per bond. The company also has an issue of 2 million perpetual preference shares outstanding with a market price of $27. The perpetual preference shares offer an annual dividend of $1.20. Imaginary also has 14 million shares of ordinary shares outstanding with a price of $20.00 per share. The company is expected to pay a $2.20 dividend one year from today, and that dividend is expected to increase by 8 percent per year forever. The company's tax rate is 40 percent. Calculate the pre-tax cost of debt, cost of equity, cost of perpetual preference shares, Total capital, weights for Debt, perpetual preference shares, Equity and the WACC?

Answer 1