Question

You are given the following information concerning Indigo Limited:

Debt 80,000 bonds with a 6.0 percent coupon rate, ten years to maturity, face value of $1000 and a quoted price of $850.71. The cost of debt before tax is 8.25%.

Ordinary Shares 600,000 fully paid ordinary shares. The dividends have an expected constant growth rate of 6 percent forever; the current price is $60.00; and the dividend next year will be $4.00. The beta is 2.0.

Preference shares 120,000 preference shares paying a dividend of $2.5 every year in perpetuity with a current price of $25.00.

Market The corporate tax rate is 30 percent; the market risk premium is 15.0 percent; and the risk-free rate is 4.50 percent.

Calculate the after tax WACC for Indigo Limited.

Answer 1

=(80000*850.71*8.25%*(1-30%)+600000*60*((4/60+6%)+(4.50%+2*(15%-4.50%)))/2+120000*25*2.5/25)/(80000*850.71+600000*60+120000*25)
=10.37%