Asia based East West PLC raised $3,000,000 by selling shares. Additionally, the company issued 5000 corporate bonds at par value of $1000 with 3 years to maturity left and 8% coupon rate. Further to a number of favourable developments Standard and Poors changed the outlook for the company from stable to positive resulting in a $60 premium on what the market currently pays per bond of East West PLC.

The yield on the US treasury bills currently is in the region of 2.3 % and the average index adjusted return on the companys class of shares is 7%. Assume the tax rate of 19%.

Additional information:

Covariance of East Wests PLC and the market 7.35

Variance of the market 9.7

1. Calculate the companys cost of debt after tax
2. Calculate the companys cost of equity
3. Calculate the companys WACC
4. Explain the use of the WACC figure by corporate finance managers.