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  3. pearson ltd is financed through the following sour

Pearson Ltd is financed through the following sources: Ordinary share: 100 million...

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Accounting

Pearson Ltd is financed through the following sources:

  • Ordinary share: 100 million shares outstanding, with current market price of

    one share at $2.2

  • Bank loan: $100 million borrowed from ANZ bank with an interest rate of 6%

  • Corporate bond: Pearsons corporate bond is currently trading at 80% of its

    face value. The bonds pay coupons once per annum and have a total book value of $100 million. The current yield to maturity on the bond is 8% per annum.

    The risk-free rate is 3% and the market risk premium is 6%. It is estimated that Pearson has an equity beta of 1.5. Assume corporate tax rate is 30%,

  • calculate the WACC for Pearson Ltd.

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