Q2. Long term capital structure of company KL is given below:

Sources of capital Book value ($ 000)

L.T. Debts 30,000

Preferred stock 5,000

Common stock 6,000

Reserves(re) 19,500

Total capital 60,500

The overall interest rate of debt is 10%, the dividend for common stockholders is $1.3per share and $1.5 for preferred stock per share, respectively. Preferred -and stock price is $13 per share. Net income of the Company is expected to be paid 40% as a dividend and 60% will be added to the retained earnings. The IRR of the company has been measured lastly as 15%, the growth rate of the dividend is 0.06. Suppose that the average income tax ratio is 30 % and the corporate tax ratio is 25 %, calculate and interpret the WACC of the Company.

3a. How does the production cycle affect the working capital of a company?

3b. What do you mean by floatation cost?

3c. Despite the companies are going concerns, why they use the optimal renewal time and the option to abandon investment appraisal.