Freeze Ltd$.$ uses only debt and ordinary shares to finance its operations. Its current

composition of debt is $$75,300$ of bank loans at an interest rate of $35\%.$ The last dividend

the company paid was $$1\mathrm{.}5$ and the current ex div market price is $$5.$ Dividends are

estimated to grow at $5\%$ per year. In the books of Freeze Ltd$.,$ ordinary shares are quoted

at $$50,400$ at a price of $60$ cents per share. Freeze Ltd$.$ pays a corporate tax of $25\%.$

Using the information provided above, calculate the;

i$.$ cost of equity, $[2$ marks$]$

ii$.$ cost of debt, and $[2$ marks$]$

iii. weighted average cost of capital of Freeze Ltd$.[3$ marks$]$

iv$.$ weighted average cost of capital if the capital structure of Freeze Ltd changes to

a$.50\%$ equity and $50\%$ debt $[1$ mark$]$

b$.30\%$ equity and $70\%$ debt $[1$ mark$]$

c$.$ What do you observe as the proportion of debt in the capital structure

increases?