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In period 0, Goldencat, a London-based corporation, has the following capital structure: The corporation has 100,000 shares of common stocks outstanding, whose price fluctuates around
In period 0, Goldencat, a London-based corporation, has the following capital structure: The corporation has 100,000 shares of common stocks outstanding, whose price fluctuates around Pcs,0 = 10 pounds per share. In that period, the company paid out dividend of Do=1 per share. The financial market expects the dividend to grow in the future at a rate of g = 5% per year. The company's bond-holders, mostly bankers in Brussels, have also provided the company a long-term non-amortized loan worth 3 million pounds in period 0, and they are expecting a return (YTM) of 8%. Corporate tax rate is t = 25%. Goldencat also sold 50,000 preferred shares in the past to another company named RoseCo in order to raise capital to deal with previous crises. The fair market price of those preferred shares are estimated to be around Pps,0 = 20 pounds per share in period 0. The terms of the preferred shares are such that every year RoseCo receives a fixed dividend of $3 dollars per preferred share. Compute the relative weights of each type of capital, denoted them as wcs, Wps, and wd. (Recall that Wes + Wps + wd = 1.) From Goldencats point of view, compute the cost of its common stock (kcs), the cost of its preferred stocks (kps) and the cost of its debt (kd). What's the company's weighted average cost of capital (WACC) in period 0? (Denote it as WACC.)
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