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Question 1 Zainab Hassen Ali SAOC has two divisions: Division M and Division N. Each division employs debt equal to 30% and preferred stock equal to 20% of its total requirements, with equity capital used for the remainder. The current borrowing rate after tax is 12%, and the company's tax rate is 30% The preference share were issued at OMR 10.50 per share. The current market price per preference share is OMR 16.5 per share. The dividend per share is OMR 2.50. The company uses the dividend growth model to evaluate the cost of equity. The company plans to The company wishes to establish a minimum standard for each division based on the risk of that division. This standard then would serve as the transfer price of capital to the division. The company has taught about using the capital asset pricing model in this regard. It has identified two sample companies, with model value betas of 0.8 for Division M and 1.20 for Division N. Hassen Al Balushi SAOC had similar capital structures to that of Zainab Hassen Ali SAOC. The risk-free rate is currently 12% and the expected return on the market portfolio is 18% a. Calculate the weighted average cost of capital for each division for Zainab Hassen Ali SAOC? (6 Marks) b. Discuss factors that could affect the WACC of the organization (2 Marks) c. Evaluate the market volatility for both divisions based on their beta values (2 Marks) (Total 10 Marks) Question 2 a. Most financial decisions, personal as well as business, involve the time value of money: We use the rate of interest to express the time value of money: The following cashflow streams need to be analysed. CASHFLOW VAR THE STREAM OMR 100 OMR200 OSR2000M ROOM X OMRO Y ONER 13 CMR300 OM 1 w Z Calculate the future terminal) value of each stream at the of year 5 with a compound annual interest rate of 10% (7 Marks) b. Mr. Hassen stated, "Borrowers benefit and Lenders loose during a period of inflation". Evaluate the above statement using the concept of time value of money? (3 Marks) Total 10 Marks)