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Question 4 - Weighted Average Cost of Capital RZ Ltd has 90,000 bonds outstanding that are selling at par ($1,000 each bond). Bonds with similar
Question 4 - Weighted Average Cost of Capital RZ Ltd has 90,000 bonds outstanding that are selling at par ($1,000 each bond). Bonds with similar characteristics are yielding 5.5 percent. The company also has 700,000 preference shares and 2,500,000 ordinary shares outstanding. The preference shares sell for $57 a share and pay $9 per share in dividends. The ordinary shares have a beta of 1.34 and sell for $52 a share. Government bonds are currently yielding 2.8 percent and the market risk premium is 8.2 percent. The corporate tax rate is 35 percent. Required: (Please ensure you show all workings). A. Calculate RZ Ltd.'s weighted average cost of capital (WACC)? B. Should RZ Ltd use the WACC calculated in part A for projects considered riskier than those of the overall firm? Explain your answer and how you could overcome any issues. C. Where would a firm use the WACC
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