Orion Corp. is a logistics and transportation company. The finance director, John Kochar, is in the process of evaluating a number of proposed capital investment projects. The following information relates to the firm's finances.
• Some years ago the firm issued 10,000 bonds, each with a face value of $1,000 and paying an annual coupon rate of 9.2%. These bonds are now trading at $1,040 per bond. A coupon payment on these bonds was made yesterday and the bonds mature next year.
• The firm has no other debt or preferred stock outstanding.
• The firm has 2,000,000 shares of common stock outstanding. The stock is currently selling for $14.80 per share and the firm is expected to pay a dividend of $1.48 per share next year. The dividend is expected to grow at a constant rate of 4% per year in the foreseeable future.
• The firm's corporate tax rate is 30%.
1. Based on the information provided, calculate Orion's weighted average cost of capital. Show your calculations.
>>Is it wrong to use the Book value weight? And How would you calculate cost of debt?
------------------------------
Yajna Fernando
------------------------------