ABC Pty is an investment company with the following balance sheet:

Long-term debt

Bonds: Par $1,000, annual coupon 6% p.a., 3 years to maturity 7,000,000

Equity

Preference shares 2,000,000

Ordinary shares 3,000,000

Total 12,000,000

The company's bank has advised that the interest rate on any new debt finance provided for

the projects would be 5% p.a. if the debt issue is of similar risk and of the same time to

maturity and coupon rate. There are currently 200,000 preference shares on issue, which pay a dividend of $1.35 per year. The preference shares currently sell for $10.85.

The company's existing 500,000 ordinary shares currently sell for $7.15 each. Pandora has recently paid a $0.70 dividend. Historically, dividends have increased at an annual rate of 5% p.a. and are expected to continue to do so in the future. The company's tax rate is 30%.

Required rate of return for the investment in a company with similar characteristics to Pandora would be 10% p.a.

Is this a good or bad investment and the rationale for investment

a) Determine the market value proportions of debt, preference shares and ordinary equity

comprising the company's capital structure.

b) Calculate the after-tax costs of capital for each source of finance.

c) Determine the after-tax weighted average cost of capital for the company.