Bonds: par $1 000, annual coupon 7% p.a Equity Preference shares Ordinary shares Total 3 years to maturity 10 000 000 5 000 000 15 000 000 30 000 000 Notes: The company's bank has advised that the interest rate on any new debt finance provided for the projects would be 6% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate. There are currently 1,000,000 preference shares on issue, which pay a dividend of $0.75 per share. The preference shares currently sell for $5.89. The company's existing 5,000,000 ordinary shares currently sell for $2.34 each. You have identified that the company has recently paid a $0.35 dividend. Historically, dividends have increased at an annual rate of 2% p.a. and are expected to continue to do so in the future. The company's tax rate is 30%. Your client wishes to understand, with the use of workings, the following aspects of this company and states that their required rate of return for investment in a company with similar characteristics to this particular company would be 10% p.a. Advise the client on whether you believe this to be a good or bad investment and the rationale for investment (or not investing).

Notes: The company's bank has advised that the interest rate on any new debt finance provided for the projects would be 6% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate. There are currently 1,000,000 preference shares on issue, which pay a dividend of $0.75 per share. The preference shares currently sell for $5.89. The company's existing 5,000,000 ordinary shares currently sell for $2.34 each. You have identified that the company has recently paid a $0.35 dividend. Historically, dividends have increased at an annual rate of 2% p.a. and are expected to continue to do so in the future. The company's tax rate is 30%. Your client wishes to understand, with the use of workings, the following aspects of this company and states that their required rate of return for investment in a company with similar characteristics to this particular company would be 10% p.a. Advise the client on whether you believe this to be a good or bad investment and the rationale for investment (or not investing)