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

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3P

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