Assuming that Brumby Forests Group from Example 14.4 is an Australian company operating only in Australia and
Question:
Assuming that Brumby Forests Group from Example 14.4 is an Australian company operating only in Australia and initially all of its shareholders are Australian residents who can take advantage of the dividend imputation system, what is Brumby’s WACC under an imputation system? The information given is that Brumby has 1.4 million shares outstanding. The shares currently sell for $20 per share. The firm’s debt is publicly traded and was recently quoted at 93 per cent of face value. The debt has a total face value of $5 million and it is currently priced to yield 11 per cent. The risk-free rate is 8 per cent and the market risk premium is 7 per cent. You have estimated that Brumby Forests’ equity has a beta of 0.74. If the corporate tax rate is 30 per cent, what is the WACC of Brumby Forests Group?
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