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Milton plc is currently reviewing the capital structure of the company. The finance director believes that the company is not financing itself in a way that minimizes its weighted average cost of capital (WACC). Milton's financing as at 1 January 20xx is as follows: $'000 Ordinary shares $1 each 15,000 Reserves 10,000 7% preference shares @$1 each 10,000 10% bonds (irredeemable ) 15,000 50,000 Other information as at 1 January 20xx) Ordinary share price (ex-div) $2.65 Preference share price (ex-div) $0.75 sens Bond price for 10% bonds $102 Last 5 years dividends (most recent last) 22 sens;23 sens,25 sens;27 sens;29 sens Required: a) Calculate the weighted average after-tax cost of capital of Milton plc. b) Discuss at least 5 implications of high gearing in a company's capital structure. Milton plc is currently reviewing the capital structure of the company. The finance director believes that the company is not financing itself in a way that minimizes its weighted average cost of capital (WACC). Milton's financing as at 1 January 20xx is as follows: $'000 Ordinary shares $1 each 15,000 Reserves 10,000 7% preference shares @$1 each 10,000 10% bonds (irredeemable ) 15,000 50,000 Other information as at 1 January 20xx) Ordinary share price (ex-div) $2.65 Preference share price (ex-div) $0.75 sens Bond price for 10% bonds $102 Last 5 years dividends (most recent last) 22 sens;23 sens,25 sens;27 sens;29 sens Required: a) Calculate the weighted average after-tax cost of capital of Milton plc. b) Discuss at least 5 implications of high gearing in a company's capital structure

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