2. Olympic Ltd. is an investment company with the following balance sheet: Notes: The company's bank has advised that the interest rate on any new debt finance provided for the projects would be 9% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate. There are currently 100,000 preference shares on issue, which pay a dividend of $1.20 per year. The preference shares currently sell for $8.65. The company's existing 500,000 ordinary shares currently sell for $2.95 each. You have identified that Olympic has recently paid a $0.25 dividend. Historically, dividends have increased at an annual rate of 4% p.a. and are expected to continue to do so in the future. The company's tax rate is 30%. You client wishes to understand, with the use of workings, the following aspects of this company and states that their required rate of retum for the investment in a company with similar characteristics to Olympic would be 11% p.a. a) What are the assumptions underlying the use of a dividend growth model for the estimation of a company's cost of equity? (2 marks) b) Determine the market value proportions of debt, preference shares and ordinary equity comprising the company's capital structure. ( 8 marks) c) Calculate the after-tax costs of capital for each source of finance. (3 marks) d) Determine the after-tax weighted average cost of capital for the company. (2 marks) e) Advise the client on whether you believe this to be a good or bad investment and the