Texts: Based on the below question, calculate the Weighted Average Cost of Capital (WACC)
Questions with numbers in blue have answers at the back of the book.
Q1 Albatross plc has the following information about its capital:
Source of Finance
Current Market Value
Present Cost of Capital
£million
%
Ordinary shares
4
12
Preference shares
1
10
Long-term loan
3
8
Required: What is Albatross's weighted average cost of capital?
Q2 Nebula plc is looking at its sources of finance. It collects the following details: Currently, there are 500,000 ordinary shares in issue, with a market price of £1.50 and a current dividend of £0.30. The number of preference shares in issue is 300,000, with a market price of £1.00 and a dividend of 15p. There are £200,000 of long-term debentures carrying 12% interest. These are currently trading at £220,000.
Required: Calculate Nebula's weighted average cost of capital.