Question
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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