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Question 5: The Kay Company has the following Capital structure as at 31st March 2019. Based...

Question 5:
The Kay Company has the following Capital structure as at 31st March 2019.
Based on Book Value Based on Market Value % Costs
Debentures 300,000 330,000 7
Preference 100,000 110,000 9
Equity 1,500,000 1,700,000 15
Debt 200,000 180,000 10
Required:
Determine the Weighted Average cost of capital using:
a) Book Value weights
b) Market Value weights
c) What are the factors affecting Cost of Capital?

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

C)

Factors Affecting Cost of Capitals:

  • Capital Structure of Firm
  • Economic conditions
  • Market rate
  • Investment opportunity and decisions
  • Income tax rates
  • Dividend policy

jeff jeffy answered 5 months ago
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