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Calculate the after-tax cost of debt for each entity

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Question - Using the data in the given table, answer the questions asked in parts (a), (b) and (c).

Items

Capital Structure

 

Wet n Wild

Taronga Zoo

Jamberoo

Debt ($ million)

35

30

55

Ordinary shares ($ million)

65

70

45

TOTAL CAPITAL ($ million)

100

100

100

Debt (YTM)

7%

6.5%

8.00%

Ordinary Equity Beta

1.3

1.4

1.05

The risk-free rate is 4% and the market return is currently 8.5%. Further, Company Tax rate is 30%.

Required -

a. Calculate the cost of ordinary shares for each entity.

b. Calculate the after-tax cost of debt for each entity.

c. Calculate the weighted average cost of capital (WACC) for each entity's capital structure.

Reference no: EM132523285

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