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Big Tour Ltd is a company that arranges group tours to a variety of seaside resorts. The company is publicly listed and it currently has 50 million ordinary shares on issue. The beta of its share is 1.2. Government bonds are currently trading at 6% per annum and the return on the market is 12% per annum. The firm has just paid a dividend of $0.40. Since the company is well established in its industry, its dividends are only expected to grow at 3% forever.
Problem (a) Calculate the cost of equity for ordinary shares and the value of ordinary shares.
Problem (b) Calculate the cost of debt and the debt value.
Problem (c) For the 100 debentures in the firm, are they currently traded at premium or at discount? Explain.
Problem (d) Calculate the weighted average cost of capital for the firm.
Problem (e) When would you use the WACC of this firm for project evaluation
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