Match each term with the appropriate definition by writing the appropriate letter in the space provided. + Term Definition 2.1 Flotation cost (a) The combination (percentages) of debt, preferred equity, or ordinary equity that will maximise the price of the firm's ordinary shares. 2.2 Cost of retained earnings re (b) | The relevant cost of new debt, taking into account the tax deductibleity of interest. 2.3 Weighted average cost of (c) The particular types of capital used by the firm capital (WACC) such as debt, preferred equity, or ordinary equity.. 2.4 Yield to maturity (YTM) of (d) The rate of return required by shareholders on debt instruments such as a the firm's existing ordinary shares. bond or debenture. 2.5 After tax cost of debt ra (e) | The cost of new ordinary shares based on the cost of retained earnings, but increased for the flotation cost. ...... 2.6 Cost of new ordinary shares (f) The average rate of return earned on a bond at ... ...... a particular market price if it is held to maturity. 2.7 Capital components (g) | A weighted average of the component cost of ...... debt, preferred equity, or ordinary equity. 2.8 Target (optimal) capital (h) The expenses incurred when selling new issues structure of capital securities.NebuziDO1 uzi ncube, 4. Describe the relationship between the changes in the rate of taxation and the weighted average cost of cl Question 7 WACC - book weight and market weights Webster Company has compiled the information shown in the following table: Source of capital Book value Market value After tax cost Long-term debt 14 000 000 R3 840 000 Preference shares 40 000 50 000 : Ordinary share equity 060 000 3 000 000 Totals R5 100 000 R6 900 000 YOU ARE REQUIRED TO: 1. Calculate the Weighted Average Cost of Capital (WACC) using the book value weights. 2. Calculate the Weighted Average Cost of Capital (WACC) using the market value weights. 3. Compare the answers obtained in parts 1 and 2. Explain the differences. Question 8 Source Managerial On 30 June 2021, Nadeem Lid has the following capital structure in the equity and liabilities section of the Statement of Financial Position (balance sheet): 300 000 Ordinary shares of R1 R8DO ODD A......4...... Share premium He RIned comE RT OLD OLD 1456 Preference shares off R 1500 000 1556 debentures Nadeem Lid has a tax rate of 30%% and expects to make reasonable profits in the next financial year and has opportunities for sustainable growth. Ordinary shareholders require a return of 5%% above debenture holders. YOU ARE REQUIRED TO: Calculate the Weighted Average Cost of Capital (WACC) rate which it must earn on all its funds. Please present your answer as follows:Ncbuzion up ocube, Question 12.17 Source: Flynn, D: "Understanding Finance & Accounting"; Newbed ard edition; Lexis Nexb; 2009. Lala Mandi has the following summarised Statement of financial position at the beginning of the year. You know that the required cost of equity is 15%, the tax rate is 30%, and the dividend payout ratio is 40%. LALA MANDI LTD STATEMENT OF FINANCIAL POSITION ON 1 JANUARY 2.05 ASSETS DLIBILITIES Non-current assets 400,000 Shareholders' equity 300,000 current assets 230 400 : 10% Debentures 120000 Long-term loan [15 # 2540 Current 30limits 210 40 : 15% Bank overdraft 150 000 ACCOUNTS PIYE DIS ..... RG30.000 RG30 000 : Limited information for the results of Lala Mandi Lid for the year is presented in the partially completed Income Statement. LALA MANDI INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2.05 JOSS: COST CO SE CS CXPENS gros promt 219 100 fess Upainting cxpenics 123 470 Profit before interest and tix Profit to shareholders Ncbuzito1 um oqube : Retained income (Note: Dividends is not normally reported in the income statement, but in the statement of changes in equity! YOU ARE REQUIRED TO: (a] Calculate the Weighted Average Cost of Capital. (b)Complete the Income Statement for the year. ility: Investigate