Drums Plc is a listed manufacturing company. The company’s finance department is about to undertake its annual review of the weighted average cost of capital (WACC). The balance sheet as at 31 Dec 2022 includes 6 million shares nominal value £1 and 9 million pounds of bonds paying annual coupon of 10% and with redemption in 4 years. The bonds will be redeemed at par in cash.  

In addition, the company has just paid dividends of £900,000 equal to 15p (£0.15) per share whilst the available profit to shareholders was £1.5m. The Return on Equity is estimated at 25%.

The shares are currently quoted at 350p each ex-dividend and the bonds at £102 per £100 nominal.

The corporate tax rate is 20%.

Required:

Determine the company’s WACC. 

Bond XYZ pays semi-annual coupons with an annual interest rate of 10% and will be redeemed at a par ($1000) in 6 years. The yield to maturity is 9%.

Required:

Calculate the price of bond XYZ.