Last year ABC Ltd reported earnings available to ordinary shareholders of $5 million. $1,250,000 was distributed as a dividend to the owners of its 1,000,000 shares. The capital structure of the company is 50% ordinary shares, 10% preference shares and 40% debt. The company is taxed at 30%.

a) If the market price of the shares is $26.25 and the dividends are expected to grow indefinitely at 5% per annum what is the company's cost of financing a new project with retained earnings? (5 marks)

b) If the company issues preference shares for a market price of $15 and pays flotation costs of $2 per share, what is the cost of preference share financing given that the preference share will pay a dividend of $1.04 in perpetuity commencing one year from now? (5 marks)

c) If the company can issue $1,000 par, 10% coupon, 7-year bonds that can be sold for $1,100 each with flotation costs of $20 per unit calculate the approximate cost of new debt financing. (5 marks)

d) Calculate the weighted average cost of capital for the company