Summary: Weighted Average Cost of Capital - Corporate Finance [EMNF2724]

I-Wac Ltd. Market PV / P0
return
Step 1: Always use the format.
WACC calculation Cost % Market Value Weight %
Ordinary Share Capital 17,31% R 2 258 240 56,38 9,760%
15,5% Preference shares 14,50% R 747 977 18,68 2,708%
13% Debentures 9% R 998 894 24,94 2,245%
Always after tax - R 4 005 111 100 14,71%

Ordinary Share Capital Ke = (8,33/70,75) + 0,055 = 17,31%
32 000 x 70,57
D1 = 7,9 (1+0,055) = 8,33 = R2 258 240
P0 = 70,57
g = 0,055
D0 (1+g) =D1

Redeemable - use calculator
13% Debentures

I = 12,5% x (1-0,28) = 9%
PMT = (955 000 x 0,13 x 0,72) = 89 388
n=6
p/yr = 1
FV = (955 000 x 1,05) = 1 002 750
PV = (998 894)

15,5% Preference shares
D = 685 000 x 16% = 109 600
P0 = 14,5%
Value of future indefinite Pref shares = 755 862

Redeemable - use calculator
I = 14,5%
PMT = (685 000 x 0,155) = 106 175
n=3
p/yr = 1
FV = 755 862
PV = (747 977)