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What would the WACC be

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Reference no: EM132992348

Question - Talga Ltd. has an outstanding loan of $75 million with a bank, and the interest rate on the loan is 5%. The company has also 50 million ordinary shares outstanding with a current price of $2.5 per share. The Beta of the ordinary share is 1.9, the market risk premium is 8.75% and the risk free rate is 1.5%. Talga Ltd. has a 30% corporate tax rate.

Required -

(a) Compute Talga Ltd's weighted average cost of capital (WACC).

(b) What would the WACC be if the company bought back half of its ordinary shares ($62.5 million) by issuing additional debt of this amount ($62.5 million).

Reference no: EM132992348

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