4. Irredeemable debentures are trading at 60% of their par value. Debenture interest is paid annually. All payments relating to the year ended 31 March 2018 have been made in full. 5. Corporation tax of 20% is payable on profits in the year in which profits are reported. REQUIRED MARKS 20 (a) Determine Canter Limited's weighted average cost of capital (WACC) (b) 5 Why do you think it is important to use the market values of debt and equity as opposed to book values when calculating a firm's WACC? Use the information of Canter Limited as an example to illustrate your answer. TOTAL MARKS 25 4. Irredeemable debentures are trading at 60% of their par value. Debenture interest is paid annually. All payments relating to the year ended 31 March 2018 have been made in full. 5. Corporation tax of 20% is payable on profits in the year in which profits are reported. REQUIRED MARKS 20 (a) Determine Canter Limited's weighted average cost of capital (WACC) (b) 5 Why do you think it is important to use the market values of debt and equity as opposed to book values when calculating a firm's WACC? Use the information of Canter Limited as an example to illustrate your answer. TOTAL MARKS 25 4. Irredeemable debentures are trading at 60% of their par value. Debenture interest is paid annually. All payments relating to the year ended 31 March 2018 have been made in full. 5. Corporation tax of 20% is payable on profits in the year in which profits are reported. REQUIRED MARKS 20 (a) Determine Canter Limited's weighted average cost of capital (WACC) (b) Why do you think it is important to use the market values of debt and equity as opposed to book values when calculating a firm's WACC? Use the information of Canter Limited as an example to illustrate your answer. 5 TOTAL MARKS 25 QUESTION 3 [25 MARKS] Canter Limited is a Windhoek based company that manufactures world class carpets for the hospitality and tourism industry in Namibia and abroad. As part of their growth strategy, the company envisage a need to invest in advanced manufacturing technologies (AMT) that would require them to raise N$5 million. The company is not sure in what proportions it should raise these needed funds but the management has decided to use their current statement of financial position as a benchmark. The company's management are anxious to know how this new funding requirement is going to impact their current operations and therefore are eager to know what their current cost of capital is. Extracts from Canter Limited's most recently audited financial statements are presented as follows: Canter Limited Statement of Financial position as at 31 March 2018 N$000 Assets Noncurrent assets 2 475 000 Property, Plant and Equipment 2 475 000 Current assets 525 000 Inventories 111 000 Trade receivables 313 000 Cash and Cash equivalents 101 000 Total assets 3 000 000 Equity and liabilities Equity 2 820 000 N$40 Ordinary shares 600 000 2% N$30 Preference shares 300 000 Accumulated profit 1920 000 Noncurrent labilities 100 000 4% Irredeemable Debentures 100 000 Current liabilities 80 000 Trade payables 55 000 Short term borrowings 25 000 Total equity and liabilities 3 000 000 4 Further relevant details relating to Canter Limited's statement of financial position as at 31/3/2018 are as follows: 1. Property, Plant and Equipment is comprised of the following carrying amounts: N$000 Land Buildings 1 900 000 Plant and Equipment 450 000 125 000 Fixtures and Fittings 2. Canter Limited's board recently agreed a full year dividend per ordinary share of N$2 to be paid in two weeks' time. Canter Limited expects to pay a dividend for the next year of N$2.20. This average annual rate of growth in dividends is expected to recur in future years. Ordinary shares are presently trading at N$32.50. 3. The preference shares are not redeemable. Preference shares have a market value of N$26.00. All preference share dividends have been paid for the year ended 31 March 2018