Reference no: EM132746981

(a) Swift plc has 10,000 shares. The current share price is £40, and the cost of equity is 13%. The company has also 1,000 bonds outstanding, with 13 years to maturity, a coupon rate of 8% and a face value of £1,000. The bonds make semiannual coupon payments and the current price is £856.25 per bond. The tax rate is 20%. What is the weighted average cost of capital (WACC) of the company?

(b) The Pizza Company has earnings before interest and taxes (EBIT) of £50,000 and market value debt of £100,000 outstanding with a 9% coupon rate. The cost of equity for an all equity firm would be 14%. The corporate tax rate is 35% and investors face a 20% tax rate on interest income and a 15% rate on dividend income. What is the value of Pizza Company's equity?

(c) Kelly Corporation is considering a two-year project. The net present value (NPV) of the project if it is all-equity financed is -£2,000 (negative). Kelly can also use a £200,000 bank loan to finance the project. The bank loan calls for annual fixed principal repayment. The corporate tax rate is 30%, and the cost of debt is 6% per annum. Assume that the debt is risk free. What is the adjusted present value (APV) of this project if the bank loan is used?