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The cost of capital

WACC by market values:

Market value equity = 2m × $1.60 = $3.2m

Market value preference shares = 0.5m × $1.25 = $0.625m

Market value irredeemable debt = $1m/$100 × $80 = $0.8m

Total market value = $3.2m + $0.625m + $0.8m = $4.625m

V e V d
WACC = ––––––– k e + ––––––– ‘k d(1 – T)’
V e + V d V e + V d

WACC = $3.2m/$4.625m × 15 + $0.625m/$4.625m × 4 + $0.8m/$4.625m × 5

WACC = 11.8%

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