Question 5:

The Kay Company has the following Capital structure as at 31st March 2019.

Based on Book Value Based on Market Value % Costs

Debentures 300,000 330,000 7

Preference 100,000 110,000 9

Equity 1,500,000 1,700,000 15

Debt 200,000 180,000 10

Required:

Determine the Weighted Average cost of capital using:

a) Book Value weights

b) Market Value weights

c) What are the factors affecting Cost of Capital?