Question 3 Imaginary Products Ltd currently has $300 million of market value debt outstanding. The 9 per cent coupon bonds (semiannual payment) have a maturity of 15 years and are currently priced at $1,440.03 per bond. The company also has an issue of 2 million preference shares outstanding with a market price of $12.00. The preference shares offer an annual dividend of $1.20. Imaginary also has 14 million ordinary shares outstanding with a price of $20.00 per share. The company is expected to pay a $2.20 ordinary dividend one year from today, and that dividend is expected to increase by 5 per cent per year forever. Required Part (a) If the corporate tax rate is 30 per cent, then what is the company's weighted average cost of capital? [ 12 marks] Part (b) Are financial managers able to influence the cost of capital? Briefly discuss. [4 marks] [Total for question 3 = 16 marks] Question 4 Toyota is interested in borrowing $5 million for 90 days. National Australia Bank has quoted a rate of 1.125 percent under the prime rate of 6.25 percent. Daiwa Bank is offering Toyota a rate of 0.75 percent over the three-month LIBOR of 4.2 percent. Required Part (a) Which is the better deal for Toyota, and what is the lower interest cost in dollars? [8 marks] Part (b) Define yield to maturity. Why is it important? [4 marks] [Total for question 4 = 12 marks]