Balance sheet at 31 May 20x4 Ordinary share capital (10p shares) Retained earnings Sm 233 5030 5263 1900 635 7798 + 6% r

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Balance Sheet At 31 May 20x4 Ordinary Share Capital 10p Shares Retained Earnings Sm 233 5030 5263 1900 635 7798 6 R 1 (331.82 KiB) Viewed 63 times

Balance sheet at 31 May 20x4 Ordinary share capital (10p shares) Retained earnings Sm 233 5030 5263 1900 635 7798 + 6% redeemable debentures at nominal value (redeemable 20x8) Long term bank loans interest rate 4%) + On 31 May 20x4 Tumers' ordinary shares had a market value of 276p (ex-div) and an equity beta of 0.6. For the year ended 31 May 20x4 the dividend yield was 4.2% and the earnings per share were 25p. The retum on the market is expected to be 8% pa and the risk free rate 2% pa. Tumers' debentures had a market value of $108(ex-interest) per $100 nominal value on 31 May 20x4 and they are redeemable at par on 31 May 20x8. The market interest rate for long term loans to companies that are similar with Tumers has not changed much compared with that when Tumers had borrowed from the banks. Companies operating solely in the holiday travel industry have an average equity beta of 1.4 and an average debt'equity ratio (by market value) of 3:5. It has been estimated that if the project goes ahead the overall equity beta of Tumers will be made up of 90% food retailing and 10% holiday travel shops. Assume that the corporation tax rate will be 17% pa for the foreseeable future Required: 1) Ignoring the project, calculate the current WACC of Tumers using: a) The CAPM b) The Gordon growth model