Assume that Z$-$CUT Ltd which was registered as a Private Limited Company in $2021$ has been operating with no debt in its capital structure. It has a targeted annual net operating income of $100,000$ and a capital equalization rate of$,k_e$ of $10\%.$ Due to the fact that this particular company is $100\%$ equity financed, its weighted capital is equal to its cost of equity $(10\%).$

Further Assume that Z$-$CUT Ltd in its recent Board Meeting and based on the professional advice of the Chief Financial Officer $($CFO$)$ decided to change its capital structure by taking drastic decision which involved the replacement of its equity with debt from a commercial bank of K$400,000$ and that the cost of this debt is $5\%$ p$.$a$.$

Z$-$CUT Ltd is further contemplating registering its company as a Public Company $($Plc$)$ in the near future. This is because the Board of Directors would like to ensure that the company will be able to raise more funds by issuance of its shares through the Stock Exchange.

Required:

Calculate:

i$.$ The value of the company without debt

$5$ Marks

ii$.$ Interest payable to debt holders

$5$ Marks

iii. Net income available to debt holders

$5$ Marks

iv$.$ Weighted Average Cost of Capital

$10$ Marks

TOTAL MARKS $=25$ Marks