Pearson Ltd is financed through the following sources: Ordinary share: 100 million...
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Accounting
Pearson Ltd is financed through the following sources:
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Ordinary share: 100 million shares outstanding, with current market price of
one share at $2.2
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Bank loan: $100 million borrowed from ANZ bank with an interest rate of 6%
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Corporate bond: Pearsons corporate bond is currently trading at 80% of its
face value. The bonds pay coupons once per annum and have a total book value of $100 million. The current yield to maturity on the bond is 8% per annum.
The risk-free rate is 3% and the market risk premium is 6%. It is estimated that Pearson has an equity beta of 1.5. Assume corporate tax rate is 30%,
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calculate the WACC for Pearson Ltd.
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