Calculating target capital and WACC
Hey guys, I need some assistance with the following case.
I need to work out what the firms cost of capital is based on the following changes. Obviously initially the target capital was 20 mil bonds / 2.5 mil preference shares / 5 mil ordinary shares, however what kind of calculations should I do in order to work out the current value of these variables?
I basically need to know the new target capital and then calculate the WACC based on that. Any help would be much appreciated.
MML has not recalculated its cost of capital in the last year or so. Our present market value capital structure is considered optimal. We issued bonds 5 years
ago with a total face value of $20 million and a fixed annual coupon rate of 12%.
The bonds now have 10 years left to maturity and trade at 110% of their face value. The company also has preference share capital. There are half a million preference shares outstanding with a par value of $5 each but they are currently trading for $6 each. The annual dividend on the preference shares is 70 cents pershare. Our ordinary shares have risen in price from $4 when they were originally issued to a current market price of $15. There are currently 5 million ordinary shares outstanding and in the past year we paid 80 cents in dividends per share.