WACC

Question 1

Non-redeemable debt

Answer 1

Kd = i(1 -t)
i = market related interest rate
t = tax rate

Question 2

Redeemable debt

Answer 2

Kd = i (1-t)
i = similar debentures traded
t = tax rate

Question 3

Value of Non-redeemable debt

Answer 3

Use TMV principles (COMP i) then Value = PMT/i

Question 4

Value of Redeemable debt

Answer 4

TMV Principles
N = Years
I/Y = Interest Rate
PV = COMP
PMT = preferred share % x total nominal value
FV = Total nominal value x (100 - % discount)

Question 5

Cost of Non-redeemable pref shares

Answer 5

Kpref = Div/MV
Div = Div% x nominal value x number of shares x 100% - issue costs%

Question 6

Cost of Redeemable pref shares

Answer 6

TMV Principles
PV = MV = MV x shares
PMT = pref share % x total nominal value
FV = total nominal value x (100% - % discount

Question 7

Value of Non-redeemable pref shares

Answer 7

MV = Div/Kpref

Question 8

Value of redeemable pref shares

Answer 8

TMV principles
PV = COMP
PMT = Pref shares % x total nominal value
FV = total nominal value x (100% - % discount)

Question 9

Cost of Equity
Constant dividend

Answer 9

Ke = D/MV or
Ke = (Expected Div/MV) + g

Question 10

Cost of Equity
CAPM

Answer 10

Ke = Rf + B(Rm - Rf)

Question 11

Value of Equity

Answer 11

No Growth : MV = D/Ke
Constant Growth : MV = D1 x (1 + g)/Ke -g

Question 12

Value of Equity (Constant Growth)

Answer 12

MV = D1 x (1 + %growth) / Ke -g