Question 2 A company has the following long-term sources of finance: 3m ordinary shares, nominal value €0.80, market price €1.70, cost of equity 15% 0.5m 5% preference shares, nominal value €1.25, market value €1.50, cost of preference shares 4% 4% irredeemable debt, nominal value €2m, market value €80, post-tax cost of debt 5%. Calculate the current WACC by book (nominal) values AND by market values. (40 marks)
Question 3 (a) ABC Ltd. has just paid out a dividend of €0.60 per share and expects dividends to grow at a rate of 4% per annum for the foreseeable future. ABC Ltd. current share price is €4.50 per share. Calculate the cost of equity using the dividend valuation model. (10 marks) (b) XYZ Ltd. is about to pay a dividend of 25 cents per share and its current share price is €2.80. Shareholders expect dividends to grow at a constant rate of 6% per annum. Calculate the cost of equity of XYZ Ltd. (10 marks) (c) Explain five (5) differences between Systematic Risk and Unsystematic Risk. (10 marks) (Total 30 marks)
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