Suppose a company ABC raised £1m in capital last year using loans and equity with a WACC of 10% and an expected rate of return of 5% from shareholders. This year it increases its principal debt by 20% at the same interest rate of 5% and buys back half of the shares it had issued, increasing the amount of capital raised by £250k with a new WACC of 5%. How much debt did they have last year? Assume a tax-rate of 0%. a. £444,000 b. £357,000 c. £369,000 d. £501,000

Suppose a company ABC raised £1m in capital last year using loans and equity with a WACC of 10% and an expected rate of return of 5% from shareholders. This year it increases its principal debt by 20% at the same interest rate of 5% and buys back half of the shares it had issued, increasing the amount of capital raised by £250k with a new WACC of 5%. How much debt did they have last year? Assume a tax-rate of 0%. a. £444,000 b. £357,000 c. £369,000 d. £501,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 1P

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