The following table shows the balance sheet for Holiday Homes Ltd. The firm is in the business of renting out holiday homes for short-term vacations. The firm’s long-term
borrowings are secured by its properties owned and short-term borrowings are used as a permanent source of financing. The interest rate on bank debt is 9% per annum and the interest rate charged on secured debt is marginally lower at 8% per annum. The firm has 20 million shares outstanding and the market valued each share at $80 per share. The expected return on its stock is 20%.

Determine the weighted average cost of capital, WACC, for Holiday Homes Ltd. The marginal tax rate for Holiday Homes Ltd is 17%.
 

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(in millions) Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Current assets Properties Other assets Non-current assets Total assets 202X (in millions) 150 300 8 50 508 2,800 200 3,000 3,508 Interest-bearing borrowings Trade payables Employee benefits Current liabilities Long-term borrowings Common-stock Retained earnings Total liabilities and equity 202X 360 200 75 635 1,680 1,000 193 3,508 (in millions) Cash and cash equivalents Accounts receivable Inventory Prepaid expenses Current assets Properties Other assets Non-current assets Total assets 202X (in millions) 150 300 8 50 508 2,800 200 3,000 3,508 Interest-bearing borrowings Trade payables Employee benefits Current liabilities Long-term borrowings Common-stock Retained earnings Total liabilities and equity 202X 360 200 75 635 1,680 1,000 193 3,508

Answer rating: 100% (QA)

To calculate the weighted average cost of capital WACC for Holiday Homes Ltd we need to consider the ... View the full answer