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Freeze Ltd . uses only debt and ordinary shares to finance its operations. Its current composition of debt is $ 7 5 , 3 0

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 $1.5 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,
ii. cost of debt, and
iii. weighted average cost of capital of Freeze Ltd.
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? [1 mark]

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