Question
You have arranged the following sources of funding: (i) $200,000 from a 5-year fixed interest loan whose annual loan payments are $48,126.91. (ii) $250,000 from
You have arranged the following sources of funding:
(i) $200,000 from a 5-year fixed interest loan whose annual loan payments are $48,126.91.
(ii) $250,000 from a 5-year zero-coupon bond with a face value of $350,000.
(iii) $300,000 from an ordinary share issue where a dividend of $18,000 will be paid in one year and it is expected to grow at 3% per annum.
(iv) $250,000 from a 5-year coupon-paying bond issue whose coupon rate is 7% and face value is $250,000.
What is the discount rate given above sources of financing? Hint: The discount rate should be the weighted average cost of capital.
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