Question

1. From the following information provided by Intel Ltd calculate the weighted cost of capital.

£000

6% bonds (redeemable in 5 years)                          4,650

7% irredeemable bonds                                                     8,500

Ordinary shares (£0.50 nominal value)                   6,400          

8% Preference shares (£0.60 nominal value)                    9,000

1. The current dividend, shortly to be paid, is 27p per share. Dividends in the future are expected to grow at a rate of 6% per year.
2. Corporation tax is currently 20%
3. Stock market prices as at 31 December (all ex dividend or ex interest):

Ordinary shares                      £5.10

Preference shares                    85p

6% bonds                               £97 per £100 bond

7% irredeemable bonds          £102 per £100 bond

Answer 1