Landmark Enterprises is interested in measuring its overall cost of capital. Current investigation has gathered the following data. The firm is in the 30% tax bracket. Debt: The firm can raise an unlimited amount of debt by selling $1000 par value, 8% coupon interest rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of $30 per bond would have to be given. The firm must also pay floatation costs of $30 per bond. Preference Share Capital: The firm cans sell 8% preference capital at its $9.50 per share par value. The cost of issuing and selling the preference shares is expected to be $0.50 per share. An unlimited amount of preference share capital can be sold under these terms. Ordinary Share Equity: The firms ordinary shares are currently selling for $9.00 per share. The firm expects to pay cash dividends of $0.70 per share next year. The firms dividends have been growing at an annual rate of 6% and this is expected to continue into the future. The stock will have to be under-priced by $0.70 per share and flotation costs are expected to amount to $0.50 per share. The firm can sell an unlimited amount of ordinary shares under these terms. Retained Earnings: When measuring this cost, the firm does not concern itself with the tax bracket or brokerage fees of owners. It expects to have available $100,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use new ordinary shares as the form of ordinary share equity financing

a) Calculate the specific cost of each source of financing (Round answers to the nearest 0.1%) Source of Capital Weight Long term debt 30% Preference share 20% Ordinary share equity 50% TOTAL 100%

b) The firms capital structure weights use in calculating its Weighted Average Cost of Capital (WACC) are shown in the table above. (Round answer to the nearest 0.1%)

i. Calculate the single break point associated with the firms financial situation (Hint: This point results from exhaustion of the firms retained earnings)

ii. Calculate the WACC associated with total new financing below the break-point calculated in part (i) above

iii. Calculate the WACC associated with total new financing above the break-point in part (i) above