Question 2 The following information applies to ATO Inc.: Number of ordinary shares : 30 million Irredeemable debentures at 12% (book value) : 58 million Bank loan at 8% : 7 million Market price of ordinary shares Market value of debentures : 6 per share : 120 per 100 debenture Dividends (recently paid) Dividend growth rate Tax rate : 15p per share : 4% in the foreseeable future : 30% Required: a. Compute the company's cost of equity. (5 marks) b. Compute the company's after-tax cost of the two debt components. (10 marks) c. Compute the company's weighted average cost of capital (WACC). (15 marks) d. Discuss three situations when the WACC may be used to assess the company's project. (10 marks) e. The company used the WACC to appraise a project when the required return is higher. Discuss the impact of this on shareholder value. (10 marks) (Total = 50 marks)