Question
Company has some investment opportunities. For this they are considering raising extra capital with following structure: 20% comes from preferred shares 30% comes form common
Company has some investment opportunities. For this they are considering raising extra capital with following structure:
20% comes from preferred shares
30% comes form common shares
50% comes from bonds
Preferred shares have 6% dividends of 100 euro par. Current market price is 120 euros.
Common shares are trading at 15,90. Last paid dividend was 1,20 per share. Company uses 45% of the profits for retained earnings. ROE is 13,4%.
Euro area stock market has returned approximately 12,8% last year. Bu-Bill rate is 0,48%.
Company's stock and equity market have correlation coefficient of 0,6. Stock had risk of 28% last year while the market risk was 24%
Bonds carry 4% coupon, payable semi-annually. Bond is trading currently at 976,01 and has 7 years to maturity.
Calculate WACC for this capital structure.
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Step: 1
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