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A Limited has a debt with a book value of S$45 million which currently trades in the market at 83% of its face value. On
A Limited has a debt with a book value of S$45 million which currently trades in the market at 83% of its face value. On the balance sheet, its equity has a book value of S$75 million with two million shares trading at S$40 per share.
a. In the calculation of the weighted average cost of capital (WACC), what weights would A Limited use?
b. Anson Limiteds pre-tax cost of debt is 13.48%. If the tax rate for A Limited is 19%, what is its effective cost of debt?
c. What are some of the drawbacks of using WACC?
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