Fortunate plcs capital structure (taken from the balance sheet) is as follows: The business pays corporation tax
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Fortunate plc’s capital structure (taken from the balance sheet) is as follows:
The business pays corporation tax at the rate of 50 per cent and is expected to earn a consistent annual profit, before interest and tax, of £9m.
The current market prices of the business’s shares are:
Preference shares £0.65 Ordinary shares £0.80 The debentures are irredeemable and have a market value of £100 per £100 nominal value.
What is the weighted average cost of capital, assuming that shareholders regard retained profit and dividends as equally valuable?
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