1. CP limited has 2.5 million ordinary shares on issue with a book value of $10 per share and a current market price of $18.50 per share. The required rate of return on equity is 11%. The market value of debt is $30 million and the before-tax cost of debt is 8%. The company tax rate is 34%. What is CP limited’s WACC?
a. 7.88%
b. 9.82%
c. 6.48%
d. 8.75%
2. The shareholders and debtholders of ACL Corporation have invested $4 million and $12 million respectively. The debtholders charge an interest rate of 10 per cent whilst the shareholders require a return of 18 per cent. What is the company cost of capital?
a. 12.00%
b. 25.00%
c. 13.75%
d. 10.75%