Question 5 (17 marks)

Calculate the WACC of Casrom Ltd, rounded to 0.00% (e.g.10.811% is rounded to 10.81%) using the following information:

Extract from statement of financial performance

Liabilities - 10% debentures ($100 par) $10,000,000

Shareholders funds

Paid-up capitalordinary shares ($1 par) $25,000,000

12% preference shares ($10 par) $5,000,000

Additional information:

• The ordinary shares are currently trading at $4.20 per share.
• Commonwealth government bonds trade at 5%.
• The return on the market portfolio is 13.5%.
• AOIs beta is 1.15.
• Its debentures are priced at $96.50 and its preference shares are
• trading at par.
• The current return on AOI debentures is 2% above the government
• bond rate.
• No company or personal taxes are levied.
• The existing capital structure is unlikely to change.