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LCC Current Cost of Capital
LCC Current Cost of Capital
determined. Using the information given, the following values are arrived at.
Cost of Debt
Floatation cost = P5
Dividend (𝐷𝑝 )
kp = 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒
(𝑃𝑝 )−𝐹𝑙𝑜𝑎𝑡𝑎𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡
15
kp = 105−5 = 14.29%
Cost of common equity is computed for using the dividend growth model.
Dividend = P0.25
0.25(1+0.15)
ks = 12.50
+ 0.15 = 17.3%
Dividend = P0.25
Dividend growth (g) = 15%
Floatation cost = 5%
𝐷1
ke = +𝑔
𝑃0−𝐹𝑙𝑜𝑎𝑡𝑎𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡
0.25(1+0.15)
ks = 12.50−0.625
+ 0.15 = 17.4%
LCC’s WACC if short term debt were to be excluded would be 14.81% while if short term debt were to be
considered, WACC decreases to just 13.86%.