Question 1 ; Hildy is a company that commenced operations many years ago. relevant details relating to the company's capital structure are extracted from its balance sheet as follows :
Components - Debentures ($100 par, 12% coupon-annual) Book Value $4,000,000
Components - Preference Shares ($3 par, 7% cumulative) Book Value $1,500,000
Components - Ordinary Shares ($1 par) Book Value $7,500,000
market yield on the debentures is 15%. Current price of debenture is $94. preference shares are trading on the market at $3.00, and a dividend of 21c per share has just been paid. forecasts in relation to market returns are as follows : expected risk-free rate of return =5%; expected return on the market porfolio = 15.0%; and the systematic risk of Hildy ordinary shares is 0.6. These shares are traded on the market at $1.2 each. Tax rate is 30%
Calculate the following : Cost of debt
Cost of preference shares
Cost of ordinary shares
The company's weighted cost of capital (WACC)