The return on the stock market as a whole is currently 9.3%. Short dated Treasury bills are currently yielding 4.12%. The Beta factor applied to returns from companies involved in the sector in which the company is considering investment projects is 1.28.
Question 2: Optimum PLS is a quoted company. It has 3 classes of quoted security:
a) £1,200,000 nominal value of ordinary shares at 25 pence per share. The market value of the shares is 139 pence. A dividend of 4 pence per share has just been paid. Dividends are expected to grow by 7% per annum for the foreseeable future.
b) £1,680,000 12% preference shares of £1, with a market value of 98 pence per share.
c) £2,800,000 of irredeemable debentures with a market value of £92 per £100 of debentures. The debentures have an interest rate of 8% of the nominal value.
This Solution contains calculations to aid you in understanding the Solution to these questions.