Question 1

GG has the following debt:

Debt:
$120 million of long dated bonds issued at par and paying a coupon rate of 6%.
The debt is currently trading at $102 per $100 nominal.
The corporate income tax rate is 30%.

Calculate the post tax cost of debt for GG. Give your answer as a percentage to one decimal place.

Question 2
TP has the following reported in its statement of financial position as at 31 August 2013:
Equity and liabilities
Ordinary shares ($1 each)

$m
10

Retained reserves

37

5% long dated bonds

The current share price is $1.20 and TP has consistently paid a dividend of 14 cents per share, giving a
cost of equity of 11.7%. The bonds are currently trading at $87.50 per $100 nominal value. The post-tax
cost of debt of the bonds is 6%.
The weighted average cost of capital (WACC) to one decimal place is:
A

8.9%

9.2%

9.4%

9.6%

Question 3
ZX has in issue 5% convertible bonds with $100 nominal value each. Each bond is either redeemable at a
premium of 2% or convertible into 15 ordinary shares in five years' time. The current share price is $6 and
this price is expected to grow at 4% per annum for the next five years.
Calculate the value that should be used as the redemption amount in the internal rate of return
calculation, for assessing the cost of a bond.
Give your answer in $ to two decimal places.

Question 4
PM has the following reported in its statement of financial position as at 31 March 2014 :
Equity and liabilities

$m

Ordinary shares ($1 each)

10

Retained earnings

60

7% irredeemable debentures

20

The current share price is $3.80 cum div and PM has consistently paid a dividend of 50 cents per share.
The debentures are trading at $96 ex int. PM is subject to corporate income tax at a rate of 30%.
Which of the following shows the correct cost of debt and cost of equity to use in the calculation of PM's
WACC?
A

Cost of debt = 4.9% Cost of equity = 13.2%

Cost of debt = 5.1% Cost of equity = 13.2%

Cost of debt = 4.9% Cost of equity = 15.2%

Cost of debt = 5.1% Cost of equity = 15.2%