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WRE Energy Limited - Impact of Economic - Legal And Tax Changes - Accounting and Finance Assessment Answer
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Internal Code: 1AGIGF
Accounting and Finance Assessment Answer
TASK: Question 1 WRE Energy Limited is a major oil and gas exploration company in Western Australia. It currently has $300 million of market value debt outstanding, consisting of 9% coupon bonds with a maturity of 15 years. The bonds pay semi-annual coupons. The face value of each bond is $1,000 and are currently priced at $1,024.87 each. The company also has an issue of 2 million preference shares outstanding with a market price of $20 each, paying an annual dividend of $1.20. WRE Energy also has 14 million ordinary shares outstanding with a price of $25.00 per share. The company is expected to pay a $2.20 ordinary dividend 1 year from today, and that dividend is expected to increase by 7% per year forever. The relevant corporate tax rate is 30%.- Calculate the after-tax cost of each of the company’s current financing sources.
- Using the information provided, calculate the market values for the financing sources for WRE Energy.
- Using the information from b.) and c.) calculate the company’s after-tax weighted average cost of capital.
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