. Optus 9:07 AM 21%

Optus 9:07 AM BAP42 A T3 2020 FEX 3abhishek QUESTION 2 (20%): Mrs. SS has just been hired to ccmpute the cost of capital of debt. bonds. preference shares and ordinary shares for Angle Mind Corporation (AMC) Ltd. Because AMCs short term and long term debts do not trade very frequently. Mrs. SS has decided to use 9% as cost of debt, Which is the yield to maturity on a portfolio Of bonds with a similar credit rating and maturity as AMCs outstanding debt In addition. AMC faces a corporate tax rate 30%. AMC's are frequently traded. An AMC bond has a SIOOO face value and a coupon interest rate of that is paid semi-annually. The bonds are currently selling for S1125 and will mature in 5 years, AMC's preference shares pay a 7% dividend on a S125 face value. The market price at which the preference shares could be sdd only S90. AMC's corporation tax rate is AMC's ordinary shares pad a Sl.25 dividend last year. Firm's dividends are growing at a rate of 6% per year and this growth rate is expected to continue into the future. The price of these shares is currently S30. The risk-free rate is 7.5% per annum and average expected rate of retum in the market is 16.5% per amum, also AMC'S Shares have a beta Of 0.64. Under the assumption that the firm's present capital Structure reflects the appropriate mix Of capital sources for the firm. it is determined the market value of the firm's capital as