Question
Big Bus Tours is a tour operator from the Okanogan Valley. The business has the following capital structure as at Dec 31, 2017. ($million) Long
Big Bus Tours is a tour operator from the Okanogan Valley. The business has the following capital structure as at Dec 31, 2017. ($million)
Long Term Loan 8% 55
Preferred Shares (100,000 outstanding) 25
Common Shares (100,000 outstanding) 20
The common shares have a current market value of $250 and the current level of dividend is $15 per share. The dividend has been growing at a compound rate of 6% a year in recent years. The Long Term loan is perpetual and has a current market value of $80 per $100 nominal. The nonredeemable preferred share has current market value of $200 per share and pays dividend of $20 per share. Tax rate is 30%.
- Calculate the Cost of Capital (Long Term Loan): (2 marks)
- Calculate the Cost of Capital (Preferred Shares): (2 marks)
- Calculate the Cost of Capital (Common Shares): (2 marks)
- Calculate the Weighted Average Cost of Capital for Big Bus Tours: (4 marks)
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