question a i ii iii

16. ChargeBank Plc is a battery manufacturer with securities listed on a large exchange. The company has the following capital structure: m m Equity Common shares (1 per share nominal value) 12 Reserves Debt 5% Unsecured bond (100 nominal value) 15 year bank loan 150 55 205 Total equity and debt 297 The common shares have a beta of 1.2. The risk-free rate is 3% and the return on the market portfolio is 8%. The next dividend, payable in one year's time, will be 0.65 per share. The directors of ChargeBank Plc expect to increase dividends at a rate of 4% per year. The unsecured bond is a 30 year-term bond, and was issued 6 years ago. The bond pays an annual coupon of 5%. The current yield-to-maturity is 5.75%, and the current market price of the bond is 90.12. The bank loan is secured against a warehouse facility and has a fixed interest rate of 6% per year. The loan was issued 9 years ago. The marginal rate of corporation tax faced by the company is 20%. Required: a) Calculate the following values for ChargeBank Ple: i. ii. iii. The current share price, using the dividend growth model; (7 marks) The after-tax cost of debt for the unsecured bond; (4 marks) The current weighted average cost of capital, using market values. (9 marks)