The directors of Zeus plc are considering opening a new manufacturing facility. The finance director has provided

Question:

The directors of Zeus plc are considering opening a new manufacturing facility. The finance director has provided the following information:

Initial capital investment: £2,500,000.

Dividends for the last five years have been:

The following is an extract from the statement of financial position of Zeus plc for the year ended 31 December 2014.
Creditors due in more than one year
8% Debenture...............................£700,000
Long-term loan (variable rate).............£800,000
Capital and reserves
2,000,000 shares of 25p each............£500,000
The authorised share capital is 4 million shares, the current market price per share at 31 December 2014 is 136p ex-dividend.
The current market price of debentures is £60 (ex-interest) and interest is payable each year on 31 December.
The interest rate on the long-term loan is 1 per cent above LIBOR, which at present stands at 16 per cent.
The debentures are irredeemable.
Ignore taxation.
Required
Calculate the weighted average cost of capital (WACC) for Zeus plc at 31 December 2014.

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...