1 An examination of the 30 June 1996 balance sheet of Donna Transport Limited reveals the following capital structure: Paid-up Capital (Ordinary Shares $3) Retained Earnings Preference Shares ($2) S (000's) 15,000 8,000 1,000 3,000 2,000 Bank Overdraft Accounts Payable Mortgage Bonds, $1,000 face value (13%) Debentures, $1,000 face value (10%) You are given the following additional information about the firm: Tax rate: 36% Mortgage bonds: market price per bond $1,000, matures 20 years from today, next interest payment due 31 December 1996 Debentures: market price per bond $935, 15 years from today, interest paid annually, and next payment due one year from now 5,000 4,000 Ordinary shares: per share market price $40, dividends paid annually, per share amount one year from now $4 and this amount expected to grow at 5 percent per year thereafter to infinity. Preference shares: currently traded at $1.25 per share and pay dividends of 9% per annum. Bank overdraft: rates are currently 15% per annum compounded daily. Clearly show the relevant cost of capital for each source of finance and compute the weighted average cost of capital for the Company. NOTE: The following information should be added to Q1 so that imputation can be incorporated into the question: a) the proportion of tax collected from the company that is claimed by shareholders is 0.6; b) ordinary dividends are fully franked, and c) preference dividends are not franked.