Extract of balance sheet for Cardigan Ltd. as at 31 March 2021:

Equity $'000

Issued And Paid-Up Capital

75m 50c ordinary shares 37,500

9.5m $1 3.5% preference shares 9,500

Reserves and Retained Profits

Retained profits 11,000

Share premium reserve 13,800

General reserve 4,000

71,050

Debt

Mortgage 5,300

Debentures ($1000 each) 6,250

Bank overdraft 14,804

26,354

You also have the following additional information available to you as of today:

1. The current market price of the firm's ordinary shares is $1.00.
2. The firm's preference shares are currently selling for 35 cents each.
3. The debentures will mature in 2 years. They have a coupon rate of 10% per annum.
4. If the company currently sought long-term finance it would have to pay interest rates of 12% per annum on debentures. An amount of $5,300,000 is owing on the mortgage and has 6 years remaining and was taken out at 12% current rates are 14%
5. The firm is currently paying 11% per annum on its bank overdraft loan.
6. Interest on debentures. mortgage and the bank overdraft is paid half-yearly.
7. The corporate tax rate is 50 %.
8. The estimated Beta of the company's ordinary shares is 1.
9. The current yield on a 10-year government bond is 12% per annum
10. The expected return on the market portfolio is 17% per annum.

REQUIRED:

1. Identify the various items that need to be included in the capital base to calculate the WACC.

(3 marks)

2. Calculate the market value of the various items identified in (a), the value of the firm and the relative weight of each item in the firms capital structure.

(5 marks)

3. Calculate the required after-tax rate of return of each item identified in (a)

(3 marks)

4. Calculate the firms WACC.