Aura Insurance Ltd (ACE) wishes to estimate its weighted average cost of capital. It has two sources of capital: ordinary shares and debentures maturing in 5 years. Currently, the market value of the shares is $18.45 per share and the market value of the debentures is $115.080 per $100 par value. The shares have recently paid an annual dividend of $2.52 per share and the debentures pay an annual coupon interest of $12.80 per $100 par value. The face value of the debentures on issue is $115 million. There are 13,500,000 ordinary shares on issue. The expected growth rate of dividends per share is 2.3% pa. Ignore taxes. ACE’s weighted average cost of capital
is closest to:
a) 13.52% pa
b) 13.73% pa
c) 13.95% pa
d) 15.07% pa