To calculate the Weighted Average Cost of Capital (WACC) for Gbewaa Ghana Ltd, we need to calculate the cost of equity, the after-tax cost of debt, and then combine these costs according to their respective weights in the company’s capital structure.

1. Cost of Equity (Re):

• The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM):

Re = Rf + βe × (Rm−Rf)

Where:

• Rf​ = Risk-free rate (yield on government debt) = 14%
• βe​ = Equity beta = 1.2
• Rm − Rf = Equity risk premium = 5%

Re = 14% + 1.2 × 5% = 14% + 6% = 20

2. After-Tax Cost of Debt (Rd):

• The cost of debt is the interest rate on the company’s bonds, adjusted for taxes:

Rd = Interest Rate × (1−Tax Rate)

Where:

• Interest rate = 18%
• Tax rate = 25%

Rd= 18% × (1−0.25) = 18% × 0.75 = 13.5%

3. Market Value of Equity (E):

• The market value of equity (E) is calculated as:

E =Number of Shares × Market Price per Share

E = 10,000,000 × GH¢5 = GH¢50,000,000

4. Market Value of Debt (D):

• The market value of debt (D) is the par value of the bonds, which equals the book value in this case:

D = GH¢10,000,000

5. Calculation of WACC:

Where:

• $E$ = Market value of equity = GH¢50,000,000
• $D$ = Market value of debt = GH¢10,000,000
• Re = Cost of equity = 20%
• Rd = After-tax cost of debt = 13.5%Final Answer:

  Gbewaa Ghana Ltd’s Weighted Average Cost of Capital (WACC) is 18.92%.