QUESTION 4

KPI plc which pays corporate tax at 30% has the following capital structure:

• Ordinary shares: 1 000 000 ordinary share of nominal value 25p per share. The market of the share is 79p per share. A dividend of 6p per share has just been paid and dividend are expected to grow by 5% per year for the foreseeable future.
• Preference share: 250 000 preference shares of nominal value 50p per share. The market value of the shares is 42p per share and the annual net dividend of 7.5% has just been paid.
• Bonds: 100 000 of 7% irredeemable bonds with a market price of 92 per 100 par. The annual interest payment has just been made.

Required:

Calculate the weighted average cost of capital of KPI plc.