Calculate the WACC of Torino and discuss when WACC can be applied for evaluating a project.

Torino Ltd is a publicly listed business in the retail sector. It presently has 40 million ordinary shares issued. Half of these shares were issued at $2.40 and the remainder at $4.00, but they are trading today at $4.80. It also has 500,000 4% preference shares that were originally issued at a price of $100, but are trading today at $99.80.

Torino Ltd’s debt at present consists of bonds with a market value of $80 million, with the coupon rate being 4.75% per annum and the yield to maturity being 4.25% per annum.

The CFO has consulted with a financial analyst with much experience in the retail sector. It is advised that the beta of Torino Ltd’s ordinary equity can be taken as 0.9. The market return is 13% , the risk free rate is 2.5% and Torino Ltd’s effective tax rate is 25%.

Please provide working.

 

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