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You have recently been hired by Manuka Ltd as a consultant to estimate the firms...

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Finance

You have recently been hired by Manuka Ltd as a consultant to estimate the firms weighted average cost of capital (WACC). Manukas only long-term debt is a long-term bank loan carrying an interest rate of 7%. The companys tax rate is 30%. The risk-free rate is 4%, the market risk premium is 5.4%, and the beta of Manukas ordinary shares is 1.2. The target capital structure consists of 28% debt and the balance as ordinary share equity. Manuka uses the CAPM to estimate the cost of equity and it does not expect to issue any new ordinary shares. What is the firms WACC?

Select one:

a.

10.48%

b.

7.88%

c.

8.92%

d.

6.57%

e.

11.79%

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