2. Your client is also investigating the characteristics of another company but does not have historical data for the evaluation process. However, information on the different sources of finance are available as well as the current market prices. Your client wishes for you to evaluate this company's current structure in an aim to identify the current returns required for the company. This company has the following balance sheet and details (below): Long-term debt Bonds: Par $1,000, annual coupon 4% p.a., 7 years to maturity 20,000,000 Equity Preference shares 3,000,000 Ordinary shares 37,000,000 Total 60,000,000 Notes: The bank has advised that the interest rate on any new debt finance provided for projects would be 5% p.a. if the debt issue is of similar risk, time to maturity and coupon rate. There are currently 1,000,000 preference shares currently on issue, which pay a dividend of $0.62 per share. The preference shares currently sell for $3.45. There are currently 37,000,000 ordinary shares which sell for $1.26 each. The company recently paid a dividend of $0.11 per share. 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 tax rate is currently 30%. Your client requires you to provide full calculations for the market values for each source of capital, the after-tax costs of each source and the weighted average cost of capital (WACC). Further, your client requires a rate of return in excess of 10% p.a. before investing money in the company. Identify, for your client, with a plausible rationale, whether the current WACC is sufficient. (16 marks)