In Namibia the market premium is estimated to be 5% and the yield on government bonds is currently at 8%. Pick Ltd has an equity beta of 0.95. Pick has issued bonds with a par value of N$100 which are currently priced at N$96.00. The annual coupon rate is 9%. The maturity date is in five years time and the corporate tax is 30%. Interest is payable semi-annually in arrears. The company has just paid the coupon interest for the current six month period. Required: a) Calculate Pick Ltd.s cost of equity based on CAPM. (2 marks) b) Calculate the after tax cost of debts. (6 marks) c) What is the weighted-average cost of capital (WACC) if the target debt-equity ratio is 25%? (6 marks)

Financial management