Question
Gold Limited has just issued a 7-year bond with a face value of $1000 and a coupon rate of 4.9% p.a. The bond trades at
Gold Limited has just issued a 7-year bond with a face value of $1000 and a coupon rate of 4.9% p.a. The bond trades at a yield to maturity of 3.4% p.a. compounding semi-annually. The companys ordinary shares are currently trading at $18. They just paid a dividend of $1.20 which is expected to grow at a constant rate of 2% p.a. forever. The debt-to-equity ratio is 70%. The corporate tax rate is 30% Assume a classical tax system. Express your answers below as a percentage, rounded after 2 decimals. E.g. if your answer is 0.058328, type 5.83% Required: A. Calculate the firms cost of equity. (2 marks)
B. Calculate the firms cost of debt. (2 marks)
C. Calculate the firm's after-tax WACC as an effective annual rate. (2 marks) Type your answers in the text box below, ensuring that you clearly label each of the 3 answers (A, B,C)
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