Pearson Ltd is financed through the following sources:

  • Ordinary share: 100 million shares outstanding, with current market price of one share at $2.2
  • Bank loan: $100 million borrowed from ANZ bank with an interest rate of 6%  Corporate bond: Pearson’s 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%, calculate the WACC for Pearson Ltd.

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