SUBJECT 2nd (3.5 Points) The liabilities of the company BKB Co are shown in the following table: in millions Equity Ordinary Shares ( 1 book value) 25 Long-Term Liabilities Bonds 20 Preferred shares 10 Current Liabilities Suppliers 10 Creditors Miscellaneous 15

The beta of the company is 1.2 and the current capitalization of the company is 125 million euros. The market value of the bonds (with an annual coupon of 7% and a nominal value of 100) is 21 million euros and the market value of the privileged shares ( 1 book value) is 6.25 million euros. The market risk premium (rm-rf) is 5% per annum, the risk-free rate of return (rf) is 4% per annum and BKB Co's tax rate is 30% per annum. 1. Calculate the weighted average cost of capital (WACC) after taxes of BKB Co, explaining any assumptions you make: using the market prices of debt and equity, using the accounting / nominal values of the debt and themselves of funds (2 points) 2. In practice, the WACC calculated from the market prices of the debt is preferred and equity, compared to that calculated from the book values. Explain why. (1.5 points