The market risk premium is 10 also government risk-free, Ask an Expert

Economics

Q. TPA Ltd has the following capital structure.

As 60000, 7%, $100 debentures presently selling at $90.00 yielding 8% (semi-annual coupons).

Long term debt including a secured liability presently has a book value of $2,000,000. Interest is payable annually at a fixed rate of 10% p.a. that is also the present market rate for the secured liability. 200000 ordinary shares also with a beta of 1.2. These shares have just paid a dividend of $0.80 that is expected to grow indefinitely at 5% pa.

The market risk premium is 10% also government risk-free bonds are paying 6%. If TPA faces a tax rate of 30% Illustrate what is its Weighted Average Cost of Capital (WACC)? Round to 2 decimal places.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9169875

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