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Question:
The only debt Allfresh Limited has is $70 million of bonds (par value) that it issued three (3) years ago. When the bonds were first issued three years ago they had a stated 10-year maturity and coupon rate of 9.5%. Currently, the bonds are trading at an investors required rate of return 8.0%. The company tax rate is 28% and the current market value of its equity is $145 million. (Use required return you calculated in Part 1 above for the cost of ordinary shares.)
What is the WACC for Allfresh Limited using the current market values of debt and equity?
I know the answer is 7.76% but I am unsure how to calculate it.
Could you please show the work of how you derived at the correct answer?
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