Page 8 of 10 Cost of capital 1. Gold Line is an executive transport company operating in London. It was launched 2000 by Ahmed Masood who has grown the company from 10 vehicles to a fleet of over 1,000 vehicles. The company is currently funded with an GBP 80 million bank loan, GBP 100 million common stock, and GBP 20 million preferred stock. The corporations tax is 20%. a. What is Gold Line's capital structure? (2 marks) Total Caplal = Debtt preft common b. Briefly explain the riskiness of each source of inahcina Promitrovide a 1 2 M investor's).perspective. (3 marks) Common shares bear the highest level of risk but also get the highest return from the firm's earnings. Preferred stock come next in terms of riskiness but they have a fixed dividend which is paid by the firm unlike common stockholder who are not guaranteed a dividend (it is at the discretion of firms directors) Bank debt is unusually secured against firms' assets and hence hears the lowest amount of risk in the business which is reflected by the low return debt providers usually get. 2. The CEO of Gold Line - the company which you have seen in Question 1- has asked you to help him understand the cost of capital for his business. a. Gold Line paid a dividend of GBP 5 per preferred stock. Its preferred stock price is GBP 25. Calculate the cost of preferred stock. (2 marks) - = 0.2 ~ 2 0 % b. Gold Line common stock currently sells for GBP 35. The last dividend the company paid to its common stock holders was GBP 6. The company expects its future dividends to grow at 6% per annum. Calculate the cost of common equity for Gold Line. (2 marks) 6 Xoco +0.06 C. Gold Line has a bank loan on which it pays a fixed interest rate of 8% per annum. Using the information about Gold line that you were given in Question 1, and the calculations you have done so far in Question 2, calculate the WACC for Gold Line. (8 marks)