Question
The capital structure of company KL is given below: Sources of capital Book value ($ 000) L.T.Debts 60,000 Preferred stock 10,000 Common stock 20,000 Reserves(re)
The capital structure of company KL is given below: Sources of capital Book value ($ 000) L.T.Debts 60,000 Preferred stock 10,000 Common stock 20,000 Reserves(re) 40,000 Total capital 130,000 The interest rate charged to the long term debt is 10%. Face value of companys common stock is $1 per share and currently are trading for $8 and dividend for common stock is $1.2 per share. Price of preferred stock is $10 per share and dividend for preferred stock is $1.5 respectively. Assume that the expected growth rate is 5%, average income tax ratio is 30% and corporate tax ratio is 25% . Calculate and comment the WACC of the firm.
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