ABCs capital structure is made of 50% Ordinary Equity, 30% Preferred Stock and 20% Debt.

ABCs dividend payout ratio is 35 precent, and the current expected net income is $750,000.

ABCs marginal tax rate is 30% and investors expect the dividends and earning to grow at the rate of 5 percent per year in perpetuity.

ABC just paid a dividend of $4 per share on its 850,000 issued ordinary shares and is currently trading at $40 per share.

ABC has issued 400,000 new preference shares with the market price of $60 per share. ABC is committed to pay a dividend of $9 per share on its preference shares.

ABC has issued 12,000 corporate bonds with face value of $1000 and 15 years to maturity that currently are traded at their face value. ABC offers an annual coupon amount of $100 for each bond.

1) Determine the market value of ordinary equity, preference shares and debt. (10 Marks)

2) Determine the cost of each capital structure component of ABC. (15 marks)

3) Calculate the weighted average cost of capital of ABC. (10 marks)

4) Which projects should ABC accept given the following investment opportunities.? (5 marks)

Project	Initial Investment	Rate of return
Dill	$500,000	16.5%
Pit	$450,000	14.5%
Sam	$300,000	17.5%