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Riverwood Ltd has 100 million $1 ordinary shares in issue with a current market value of $2.00 per share. The cost of ordinary shares is
Riverwood Ltd has 100 million $1 ordinary shares in issue with a current market value of $2.00 per share. The cost of ordinary shares is estimated at 5 per cent. The business also has 5 per cent irredeemable loan notes in issue with a nominal value of $60 million. These are currently quoted at $60 per $100 nominal value. Ignore the corporate tax, show all calculations (a)For Riverwood Ltd, what is the weighted average cost of capital of the business? (20 marks) (b) Discuss the advantages of a business having ordinary share capital and loan capital as part of its capital structure
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