2. Bolero plc., has compiled the following information on its financing costs: Type of financing Book value () Market value () Cost (%) Long-term debt 2,000,000 2,000,000 3.5 Short-term debt 9,000,000 8,000,000 6.8 Ordinary shares 6,000,000 22,000,000 14.5 Total 17,000,000 32,000,000 The company is in the 28 per cent tax bracket and has a target debt-equity ratio of 60 per cent. The target short-term debt/long-term debt ratio is 20 per cent. a) What is the companys weighted average cost of capital using book value weights? b) What is the companys weighted average cost of capital using market value weights? c) What is the companys weighted average cost of capital using target capital structure weights? d) What is the difference between WACCs? Which is the correct WACC to use for project evaluation? 3. Mojito Mint Company has a debt-equity ratio of 0.45. The required return on the companys unlevered (ungeared) equity is 17 per cent, and the pre-tax cost of the firms debt is 9 per cent. Sales revenue for the company is expected to remain stable indefinitely at last years level of 23,500,000. Variable costs amount to 60 per cent of sales. The tax rate is 28 per cent, and the company distributes all its earnings as dividends at the end of each year. a) If the company were financed entirely by equity, how much would it be worth? b) What is the required return on the firms levered (geared) equity) c) Use the weighted average cost of capital method to value the company. What is the value of the companys equity? What is the value of the companys debt? d) Use the flow to equity method to calculate the value of the companys equity. 4. Compare and contrast the strengths and weaknesses of the adjusted present value, weighted average cost of capital, and flow to equity approaches to investment appraisal. Which method, in your opinion, is the best? Explain