Calculate the weighted average cost of capital for the following company, using both book value and market
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Calculate the weighted average cost of capital for the following company, using both book value and market value weightings.
Statement of financial position
(Balance sheet) values Cost of finance Ordinary shares: (par value 50p) £10m 20%
Reserves: £20m 20%
Long-term debt: £15m 10%
The debt is permanent and its market value is equal to book value.
The rate of corporate tax is 30%.
The ordinary shares are currently trading at £4.50.
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