Objective Ltd. is a logistics company with the following balance sheet:

Long-term debt	$
Bonds: Par $100, annual coupon 7% p.a., 3 years to maturity	3,000,000
Equity
Preference shares	1,000,000
Ordinary shares	6,000,000
Total	10,000,000

Notes: The companys bank has advised that the interest rate on any new debt finance provided for the projects would be 8.5% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate.

There are currently 500,000 preference shares on issue, which pay a dividend of $0.17 per year. The preference shares currently sell for $2.50.

The companys existing 6,000,000 ordinary shares currently sell for $0.95 each and management has disclosed that it expects to pay a dividend of 5 cents per share at the end of the next year. Historically, dividends have increased at an annual rate of 7% p.a. and are expected to continue to do so in the future.

The companys tax rate is 30%.

a) What are the assumptions underlying the use of a dividend growth model for the estimation of a companys cost of equity?

b) Determine the market value proportions of debt, preference shares and ordinary equity comprising the companys capital structure.

c) Calculate the after-tax costs of capital for each source of finance.

d) Determine the after-tax weighted average cost of capital for the company.

e) Under what conditions can the firms weighted average cost of capital be used for assessing new projects?