Answer to Question #179863 in Finance for Bishem

Question #179863

BMX Ltd. has asked you to determine its current weighted average cost of capital (WACC) and has provided the following information.


BMX has 1 million common shares outstanding that are currently trading at a price of K525 and are expected to pay a dividend of K75 per share this year. The company also has a single K15,000,000 market value long-term debt issue outstanding. The bonds carry an 8% coupon rate. Investment analysts have indicated that BMX’s shares have a beta of 1.30. The market premium is 6.5% and the risk-free return is 2.5 percent. BMX is in the 35% tax bracket.


Required:


Determine BMX’s WACC under the assumption that BMX will finance new projects using returned earnings instead of issuing new common stock.



1
Expert's answer
2021-04-13T07:15:14-0400


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