A Qulz Question 11 Wealth Drilling Management is evaluating an opportunity to take on a project in the oil and gas industry in Dubai. To properly assess the opportunity, the company must calculate its cost of capital. loyal and Marked out of 11.00 10 The following is the existing capital structure based on the book value: Flag question 192 Debentures Preferred Shares Finish atte Common Shares $12,000,000 5,000,000 10,000,000 15,000,000 $ 42,000,000 Time left o Retained Earnings TOTAL The debentures have a coupon rate of 11% and were issued 20 years ago with 15 years left to maturity. Current market yields on a security of this risk level are 8%. Flotation costs would be 2.5% of the issue price The preferred shares have a fixed dividend rate of 9% were issued at $40 per share and currently trade at $45 per share. A new issue would require a flotation cost of 4% The company has been enjoying a stable growth in the last 5 years with its dividends growing from $0.80 per share to $1 18 per share that was just pald. It is anticipated that the growth rate will continue going forward. There are 5 million common shares currently outstanding and are trading at $15 per share. New shares will be issued a $15 per share also with flotation costs of 8%. Internally generated funds will have to be supplemented by new external sources for the equity contribution to the new capital project. The tax rate is 30% The market value of debt is: $15,081,412 w $17.491,025 $12.000.000 $8.789.432 The market value of Preferred $5.625,000 MacBook Air esc FI 80 F3 DOD - F5 F6 11 F7 FB FO Flo Ef # 3 A 2 $ 4 % 5 * 6 & 7 8 9 0 Q 3 E R. T Y U 1 O S D F H J L 7