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Question 8 (10 marks) You have been provided with the following information on C-B P/L which has the following on its books; Book value Market value
Question 8 (10 marks) You have been provided with the following information on C-B P/L which has the following on its books; Book value Market value Cost of Capital (After-tax cost) Long-term debt $ 750,000 $780,000 6.8% Ordinary equity $ 450,000 $600,000 8.4% Preference capital $ 300,000 $400,000 7.1% a) What is the WACC % (using the BV weights)? (4 marks) b) What is the cost of capital and what is the role that it plays in making long-term investment decisions? (4 marks) c) Why is the cost of equity higher than long or short-term debt? (2 marks)
