1. The interest rate on the bank loan is 8.8% p.a.
2. The interest rate on the mortgage loan is 5.7% p.a.
3. The corporate bonds have a credit rating of BBB+ and have 3 years to maturity. They require semi-annual coupon payments at a coupon rate of 8% p.a.
4. The ordinary shares are shown on the balance sheet at their book value of $1 per share. They have a beta of 1.2. They are expected to pay a dividend of $0.10 next year. The dividend is expected to grow at a rate of 10% p.a. for the following 4 years and, after that, it will grow at a constant rate of 4% p.a. in perpetuity.
5. 5. The preference shares have a par value of $1 each and are shown on the Balance Sheet at their par value. They pay a constant dividend of $0.11, and they are currently trading for $1.19.
6. 6. The market risk premium is 6.7%.
7. 7. The corporate tax rate is 30%. The 3-year risk-free rate is 2.93%. The 10-year risk-free rate is 3.56%

 

QUESTIONS:

1. Calculate the cost of ordinary shares and preference shares  
2. Calculate the market prices of ordinary shares and preference shares 
3. Calculate the total market values of ordinary shares and preference shares