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Memoe Plc is a large firm with a market capitalisation of 3,560,000,000 (3.56 Billion). The...

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Accounting

Memoe Plc is a large firm with a market capitalisation of 3,560,000,000 (3.56 Billion). The firm has one billion ordinary shares issued.

The firms long-term debt consists of a single bond issue of 100 million bonds with a current market price of 92.60 per bond. These bonds are redeemable at par of 100 per bond in 5 years time. The coupon on these bonds is 6.86% paid annually. Corporate tax rate is 12.5%.

You have calculated the firms beta using historical data over a five-year period as 1.36. the risk-free rate of interest is 4.25% per annum, the returns on equity markets over the past five years average 7.3%.

a) Calculate the Weighted Average Cost of Capital
b) Comment on your result. Do you think that the Weighted Average Cost of Capital is realistic? How risky is this firm compared to the average?
c) What is the companys current share price?

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