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Question 6 (12 marks) Company E.T. is an Australian company with the following characteristics: Market value of debt: $150 million Number of shares outstanding: 4

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Question 6 (12 marks) Company E.T. is an Australian company with the following characteristics: Market value of debt: $150 million Number of shares outstanding: 4 million Share price: $50 Beta: 1.8 Most recent dividend: $1.5 per share; Dividends are expected to grow at 5% per year indefinitely Weighted average cost of capital (WACC): 6% Corporate tax rate: 40% What is E.T.'s pre-tax cost of debt? (12 marks)

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