[c] A rm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Source of Capital Target Market Proportions Long Term Debt 25% |Dommon Stock 643% Total Firm Value move Debt: The rm can sell a flityear, Rlvlt .fi par value, 6% bond for Rlvl945. Preferred Stock: The rm has determined it can issue preferred stock at RMF'D per share par value. The stock will pay a HMS annual dividend. Common Stock: A rm's common stock is currently selling for Rlvl'lQ per share. The dividend expected to be paid at the end of the coming year is Rfvll. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was Rlvlt .5t}. Additionally, the rm's marginal tax rate is 35%. Determine the weighted average cost of capital for the rm. {15 marks} PartA [100 marks] Answer all questions. QUESTION 1 {25 MARKS] (a) {b} Suggest how stockholders' direct engagement with managers and management remuneration may be gtjliggg to guarantee managers operate in the best interests of shareholders by W shareholder yalue. {5 marks} Explain the link between the Weighted Ayerage Cost of lCapital {WAGE} and leverage. If you use market values to calculate the WAGE and your stock price or bond prices become erraticr elaborate how this will inuence your capital structure and, as a result, the rm's inyestment choice. {5 marks} QUES'I'IDN 2 {25 MARKS] (a) A project starts with an initial capital outow of RM4501DDD in exchange for the following likely cash ows: State of __ End of Tear1 End of Year 2 Probability Economy [RM] {RM} Assume that the economy will he in the same condition in the second year as it was in the rst. The discounted rate of return is 15 percent. There is no taxation or ination. i] Calculate the expected Net Present Value (NPV). {ti marlcs} ii} Calculate the standard deyiation of Net Present Value [N W). {14 marks} (h) Project X has an anticipated return of RM1,5EID and a standard deyiation of RM5UU. Project '1' has expected return of RM1,DDU and a standard deviation of FEM-4m. Justify which project is the riskiest. {5 marlcs}