WestCo Ltd (WTC) is a publicly traded company with a current share price of $33 per share and had 14 million shares outstanding. WTC had just paid $1.87 per share in dividends and the dividends are expected to grow by 6% per year in the future. WTCs long-term debt consists of 14% bonds issued with a face value of $70 million, paying semi-annual coupons. These bonds have exactly 6 years to maturity with 12 coupons to be paid. The market yield on the bonds is quoted at 11% p.a. Its equity consists entirely of ordinary shares. The beta of WTC is 1.54, the risk-free rate is 2%, and the market risk premium is 6.5%. The corporate tax rate is 30%.

A. Calculate the market value of equity and market value of debt for WestCo Ltd? (5 marks)

B. Calculate WestCos cost of equity and after-tax cost of debt? (5 marks)

C. What is WestCos weighted average cost of capital (WACC)? (5 marks)

D. WestCo is planning to extend their existing business overseas. The project costs $10mil now. WestCo expects that starting from year 1, the annual Free Cash Flows (FCF) will grow at a constant rate of 3% forever. What is the minimum first year Free Cash Flows so that WestCo will accept this project? (5 marks)

E. CEO of WTC intends to raise an additional debt capital of $10 million to fund the expansion of its business overseas. Discuss the implications of raising debt capital on the capital structure and WACC of WTC.