Yellow Plc is financed by way of 500,000 equity shares of £1 each nominal value and £120,000 (nominal value) 10% redeema

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Yellow Plc is financed by way of 500,000 equity shares of £1
each nominal value and £120,000 (nominal value) 10% redeemable
debt. The shares have a current market value of £2.12 per share
cum-dividend, with a dividend of 32 pence per share about to be
paid. Total dividends on the shares over the past four years have
been £85,000, £102,000, £120,000 and £136,000, and the total
dividend about to be paid is £160,000. The market value of the
firm’s debt is currently £85 per nominal £100. Debt interest for
the year is about to be paid, and a premium of 5% is payable on
redemption of the debt in six years’ time.
Calculate the company’s: cost of debt by interpolation
method: