Solution-Find the before tax and after-tax cost of debt

Find the before tax and after-tax cost of debt

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Part A - The yield on 5-year Australian Government bonds as at 3 April 2019 is 3.46%. Mochaccinos Ltd's share price at 7 December 2020 is $100.32 per share while it has a beta coefficient of 1.77. Trailing twelve months (TTM) return on the ASX S&P 200 is 15.74%. Estimate the cost of equity using the Capital Asset Pricing Model (show all workings). What does the cost of equity tell you?

Part B - On 15 November 2020, Resources Ltd issued $500,000,000 aggregate principal amount of $1,000 per value fixed interest bonds payable carrying semi-annual coupon rate of 5.75%. They are maturing on 15 November 2027. The bonds have a market value per bond of 115.7 as at 15 November 2020. If the tax rate is 25%, find the before tax and after-tax cost of debt using the yield to maturity approach (show all workings). What does the yield to maturity approach tell you and how is it used?

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Find the before tax and after-tax cost of debt

Reference no: EM133030864

Reference no: EM133030864

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