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Question 3: (A) Maldex Trucking has 10 million shares of stock outstanding (at S1 par value) selling at $23.00 per share and an issue of
Question 3: (A) Maldex Trucking has 10 million shares of stock outstanding (at S1 par value) selling at $23.00 per share and an issue of $50 million in 9% annual coupon bonds with a maturity of 17 years, selling at 93.500 percent of par. Its next dividend is expected to be $3.00 per share and all future dividends are expected to grow at 6% per year, indefinitely. The firm's tax rate is 35%. The CFO thinks the WACC should be based on market value weights but the president thinks book weights are more appropriate. What is the difference between these two WACCs? (That is, calculate two WACCs - based on market value weights and based on book value weights). (16 marks) N.B: Use 2-decimal places in all calculations. (B) Why is it important to use market-based weights rather than balance sheet weights when estimating a company's weighted average cost of capital
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