Petalt plc wishes to carry out a shareholder value analysis for which it has gathered the information shown in the table below: The managers do not yet know the cost of capital but do have the following information. The capital is in three forms:

1. A floating rate bank loan which raised 1m at 2 per cent over bank base rate. Base rates are currently 9 per cent.

2. A 25 year vanilla bond issued 20 years ago at par (100) raising 1m. The bond has an annual coupon of 5 per cent and is currently trading at 80. The next coupon is due in one year.

3. Equity capital with a market value of 2m.

Additional Information:

Latest annual sales	1m
Sales growth rate	10%
Operating profit margin before tax	10%
Tax rate on corporate profits	31%
Incremental fixed capital investment	17% of sales change
Incremental working capital investment	6% of sales change
Planning horizon	5 years

The rate of return from investment in long-term government securities is currently 6 per cent, with the average risk premium for shares over the risk-free rate averaging 5 per cent. Petalts shares have an above-average risk and its historic beta is measured by the comovement of its shares, the market index correctly reflects the risk adjustment necessary to the average risk premium is 1.3.

Required:

a) Calculate the cost of bond finance.

b) Calculate the cost of equity finance.

c) Calculate the weighted average cost of capital.

d) Calculate shareholder value.