MINI-CASE-C1.65N6.27 ---- Mention this Code for answering this question.

The following figures have been extracted from the financial statements of MRT Ltd:

> Book Value of Current Assets $35 million and Current Liabilities $29.25 million

> Long-term Loan: $6.27 million

> Retained Earnings: $22.50 million

> 9% Debentures: $27 million debentures issued at $1,000.

> General Reserves $7.50 million

> Preference Share Capital: 7.9 million shares issued at $2 per share

> Ordinary Share Capital: 30 million shares issued at $1 per share

The following additional information has been provided by the manager of the company:

> Government bonds are currently yielding 6.0% per annum.

> The current market return on equity is estimated to be 15.4% per annum.

> A merchant banker suggests that MRT Ltd would have to offer a rate of 13.7% p.a. on any new issue of 21-year debentures.

> Debenture coupons are paid semi-annually, with 21 years to maturity.

> The company tax rate is 34%.

> Preference shares of MRT Ltd are currently traded at $1.65 per share

> MRT Ltd ordinary shares have recently traded at $3.95 and the company's financial manager believes that a beta of 2.3 is appropriate for the company.

Requirement-A. Using relevant information, estimate the weighted average cost of capital for MRT Ltd. <4 marks>

Requirement-B. Using your own words, explain any four relevant factors that can affect the cost of capital. <2 marks>