Cost septa Z plc is a quoted company. The following information is available about its capital structure. 1 Ordinary shares Retained profits 10% 50p Preference shares 9% Debentures 000 9000 6000 1000 2000 3000 % Bank loan (secured) Additional notes: 1. The ordinary shares are currently priced at 220p ex-div and each preference share is priced at 60p ex-div. The debentures are priced at par ex interest. Both preference shares and debentures are irredeemable. 2. Ordinary dividend paid for the year is 35p per share and this is expected to grow at 7% annually in the foreseeable future. 3. Corporation tax is paid at 30%. Required: a) Calculate the cost of each source of finance. b) Calculate XYZ 's weighted average cost of capital (WACC). c) Critically evaluate the use of the above WACC as a discount rate for new investments. essage e diag e) Calculate the gearing ratios using both book values and market values. Comment on these ratios Cost septa Z plc is a quoted company. The following information is available about its capital structure. 1 Ordinary shares Retained profits 10% 50p Preference shares 9% Debentures 000 9000 6000 1000 2000 3000 % Bank loan (secured) Additional notes: 1. The ordinary shares are currently priced at 220p ex-div and each preference share is priced at 60p ex-div. The debentures are priced at par ex interest. Both preference shares and debentures are irredeemable. 2. Ordinary dividend paid for the year is 35p per share and this is expected to grow at 7% annually in the foreseeable future. 3. Corporation tax is paid at 30%. Required: a) Calculate the cost of each source of finance. b) Calculate XYZ 's weighted average cost of capital (WACC). c) Critically evaluate the use of the above WACC as a discount rate for new investments. essage e diag e) Calculate the gearing ratios using both book values and market values. Comment on these ratios