Question 4 [25 Marks) (a) Distinguish between operating lease and finance lease [ 5 marks] (b) The cost of capital is affected by several factors, some beyond the control of the firm and others dependent on the investment and financing policies of the firm. Discuss any two factors that are within the control of the firms and two external factors that affect the weighted average cost of capital. [10 marks] (c) Frenzi Communications Inc. (FCI) has the following capital structure, which it considers to be optimal: debt = 25%, preferred stock = 15%, and common stock = 60%. FCI's tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. FCI paid a dividend of GhC3.70 per share last year (DO), and its stock currently sells at a price of GhC60 per share. Ten-year Treasury bonds yield 6%, the market risk premium is 5%, and FCI's beta is 1.3. The following terms would apply to new security offerings. Preferred: New preferred could be sold to the public at a price of GhC100 per share, with a dividend of GhC9. Flotation costs of GhC5 per share would be incurred. Debt: Debt could be sold at an interest rate of 9%. Common: New common equity will be raised only by retaining earnings. i. Find the component costs of debt, preferred stock, and common stock. (7 marks) ii. What is the WACC? [3 marks]