Question 5 [3 points) Lighthouse Inc., a retail company in the U.S., has two outstanding debts: A floating rate bank loan repayable on June 30, 2026. Interest rate is reset on Jan 1 and July 1 each year at 6-month LIBOR + 2% p.a. A 7% fixed rate bond with a face value of $160 million and a remaining maturity of 8 years. Lighthouse had total interest expense of $15.4 million for the fiscal year ended June 30, 2021. Lighthouse's current fixed rate financing cost, for maturities of 8 to 10 years, is 2.8% over US Treasuries. (2.8% is the credit spread). Current US Treasury rates are: 2.5% for 8-year, and 2.7% for 10-year. 6-month LIBOR rates (p.a.) for the past periods: Jan 1, 2020 = 1.0% Jul 1, 2020 = 1.4% Jan 1, 2021 = 1.6% Jul 1, 2021 = 1.9% The tax rate is 25%. Equity risk premium is 6%. The unlevered beta for the retail industry is 0.9. Lighthouse has 300 million issued shares, trading at $2.5 per share. a. Estimate the market value of debts. [1.5 points) b. Estimate the firm's WACC. (1.5 points) Question 5 [3 points) Lighthouse Inc., a retail company in the U.S., has two outstanding debts: A floating rate bank loan repayable on June 30, 2026. Interest rate is reset on Jan 1 and July 1 each year at 6-month LIBOR + 2% p.a. A 7% fixed rate bond with a face value of $160 million and a remaining maturity of 8 years. Lighthouse had total interest expense of $15.4 million for the fiscal year ended June 30, 2021. Lighthouse's current fixed rate financing cost, for maturities of 8 to 10 years, is 2.8% over US Treasuries. (2.8% is the credit spread). Current US Treasury rates are: 2.5% for 8-year, and 2.7% for 10-year. 6-month LIBOR rates (p.a.) for the past periods: Jan 1, 2020 = 1.0% Jul 1, 2020 = 1.4% Jan 1, 2021 = 1.6% Jul 1, 2021 = 1.9% The tax rate is 25%. Equity risk premium is 6%. The unlevered beta for the retail industry is 0.9. Lighthouse has 300 million issued shares, trading at $2.5 per share. a. Estimate the market value of debts. [1.5 points) b. Estimate the firm's WACC. (1.5 points)