Question 1 (total of 12 marks): Classic Ltd has provided you with the following information. All rates are effective annual rates. Assume a classical tax system.

• The company has bonds on issue with a face value of $1,000 that currently pay a coupon of $35 every six months. These bonds currently trade at par.
• 10-year Government Bonds yield 1.6% and the market risk premium is 5% pa.
• The beta of the companys equity is 0.9
• The debt-to-equity ratio is 2.2:1
• The corporate tax rate is 30%

Provide all answers as decimals rounded to 6 decimal places.

Question 1a (3 marks): Calculate the firms required return on equity (r_E). Give your answer as a decimal thats correct to 6 decimal places. So, for example if your answer is 1.23456789%, you can write 0.012346.

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Question 1b (3 marks): Calculate the after tax cost of debt (r_D). Give your answer as a decimal thats correct to 6 decimal places. So, for example if your answer is 1.23456789%, you can write 0.012346.

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Question 1c (3 marks): Calculate the weighting of Debt (D/V). Give your answer as a decimal thats correct to 6 decimal places. So, for example if your answer is 1.23456789%, you can write 0.012346.

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Question 1d (3 marks): Calculate the companys after-tax WACC. Give your answer as a decimal thats correct to 6 decimal places or more. So, for example if your answer is 1.23456789%, you can write 0.012346.

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