The Betting Company has a book value balanced sheet resembling the following : The rate of new bank loans as well as interest rate on debt is 10%. The current liabilities are completely note payable to the Country Bank.

OTHER INFORMATION

The Betting Company's long-term debt consists of 30,000 bonds, each of which has a par value of $1,000, carries an annual coupon interest rate of 6 percent, and will matures in 20 years. The doing interest rate on new long-term debt is 10 percent, which is also the present yield to maturity on the bonds.

The

common stock sells for $60 per share.

The

firm's beta is 1.6, the risk free rate is 9 percent and the expected return on

the market is 13 percent.

Required:

a)Calculate

the firm's market value capital

structure.(5

Marks)

b)Calculate

the Weighted Average cost of Capital

(WACC).(10 Marks)

c)Outline

the effects if the Company Policy if the

Betting Company fails to adjust for differences in risk when estimating the

cost of capital for their various projects?(5 Marks)