Question
Mathenthenyana Industries is a large tyre manufacturing company based in Francistown whose debt has a market value of P40 million and pays 15-percent rate of
Mathenthenyana Industries is a large tyre manufacturing company based in Francistown whose debt has a
market value of P40 million and pays 15-percent rate of interest on the debt whose beta is 1.41. The company
has 3 million outstanding shares of stock each selling for P20 per share. The corporate tax rate is 34 percent.
The risk premium on the market is 9.5 percent and the risk-free rate is 11 percent.
i. Find the cost of equity
[3 marks]
ii. Find the after-tax cost of debt
[3 marks]
iii. Find the weight of debt and equity respectively
[4 marks]
iv. Calculate Mathenthenyanas WACC and comment on what it means.
[4 marks]
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