Weighted average cost of capital for BrainM plc

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Weighted average cost of capital for BrainM plc

A Company (BrainM plc) has 10 million ordinary shares of 50p each in issue out of an authorised ordinary share capital of 12 million. The company has recently paid a dividend of 12p per share on the ordinary shares, which are currently listed at 112p ex div. The dividend growth rate has recently been a little under 10% p.a., and this is expected to continue for the foreseeable future. Extracts from the group balance sheet are as follows:

BrainM plc
Ordinary shares 5,000
Share premium 3,920
Reserves 7,490
Minority interests 1,790
3% irredeemable debentures 3,000
6% redeemable debentures 4,000
Bank loans 7,080

Interest on the debentures is payable annually, and both of the current year`s payments are impending. The current market prices for £100 nominal value stock are £31.50 and £103.50 for the 2% and 6% debentures, respectively (both values being cum interest). The 6% debentures are redeemable in ten years` time at a premium of 2.5%. The bank loans currently bear interest at 2% p.a. above base rate (which is currently 3.5%) and are repayable in eight years. The effective corporation tax rate for BrainM plc is 35%.

How would I calculate the weighted average cost of capital to be used by the company in appraising the viability of the projects? Can you please explain, so i can understand how and why you come about it.

If anyone can help me, it would be much appreciated. Thank you in advanced.

If more credits are needed to solve the problem, please let me know.

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