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

Question 1 (total of 12 marks): Moby 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 $30 every six months. These bonds currently trade at par.
  • 10-year Government Bonds yield 3% and the market risk premium is 5% pa.
  • The beta of the companys equity is 0.8
  • The debt-to-equity ratio is 1.7:1
  • 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 (rE). Give your answer as a decimal thats correct to 6 decimal places.

Question 1b (3 marks): Calculate the after-tax cost of debt. Give your answer as a decimal thats correct to 6 decimal places.

Question 1c (3 marks): Calculate the weighting of Debt (D/V). Give your answer as a decimal thats correct to 6 decimal places.

Question 1d (3 marks): Calculate the companys after-tax WACC. Give your answer as a decimal thats correct to 6 decimal places or more.

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