2. Plaza ple is a property development business operating in Limassol. The business has the following capital structure as at 30 December Year 14: 15 million 1 ordinary shares 20 million 9% debentures The ordinary shares have a current market value of 3.80 and the current level of dividend is 20c per share. The dividend has been growing at a constant rate of 4% a year. The debentures of the business have a market value of 80 per 100 nominal value. The business has obtained planning permission to build a new office block in a redevelopment area. The business wishes to raise the whole of the finance necessary for the project by the issue of more 9% debentures at 80 per 100 nominal. This is in line with a target capital structure set by the business where the amount of debt capital will increase to 70% of ordinary share capital within the next two years. The rate of corporation tax is 25%. Required a. Calculate the WACC (Weighted Average Cost of Capital) that should be used for future investment decisions. (30 marks) Cost of Ordinary Shares (Equity) dl Ke= +g P Ke-Cost of equity (ordinary shares) dl-Dividend at the end of the first year P-Market Value (Price) of an ordinary share g-Annual dividend growth Cost of Debt (Loan Capital) Kd= (1-1) Pd Kd-Cost of Debt r=Interest rate t = Corporation tax rate Pd-Current market price of the loan capital (Total: 30 marks)