Question
Suppose a company ABC raised 1m in capital last year using loans and equity with a WACC of 10% and an expected rate of return
Suppose a company ABC raised £1m in capital last year using loans and equity with a WACC of 10% and an expected rate of return of 5% from shareholders.
This year it increases its principal debt by 20% at the same interest rate of 5% and buys back half of the shares it had issued, increasing the amount of capital raised by £250k with a new WACC of 5%. How much debt did they have last year?
Assume a tax-rate of 0%.
a. £444,000
b. £357,000
c. £369,000
d. £501,000
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
10th Canadian edition
1259261018, 1259261015, 978-1259024979
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