Question
Below is ABC Shipping's source of capital structure:
|
Source of capital
|
Market Value
|
Cost
|
|
Long-tenn debts
|
$ 8
|
500
|
000
|
5.0%
|
|
Preference shares
|
$ 1
|
500
|
000
|
14.0%
|
|
Ordinary shares
|
$15
|
000
|
000
|
?
|
The ordinary sl are equity has a beta of 1.2. The risk-free rate is 6% and the market return is 11%.
a What is the cost of equity?
b The company tax rate is 30%. Calculate the Weighted Average Cost of Capital (WACC) for the company.