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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 $60 every six months. These bonds currently trade at par.
- 10-year Government Bonds yield 2% and the market risk premium is 5% pa.
- The beta of the companys equity is 1.5
- The debt-to-equity ratio is 2.3:1
- 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. 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 . 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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