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QUESTION 5 RON Ltd has the following capital structure components: • Five million shares issued with a current market price o

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Answer #1

Market value of common stock = 5,000,000 * 7 = 35,000,000

Market value of debt = 10,000,000 (since coupon rate is equal to yield to maturity, face value will be equal to price)

Total market value of capital structure = 35,000,000 + 10,000,000 = 45,000,000

WACC = (35,000,000 / 45,000,000)*0.11 + (10,000,000 / 45,000,000)*0.06*(1 - 0.3)

WACC = 0.085556 + 0.009333

WACC = 0.0949

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