QUESTION 5 (20 Marks) Khayalami Limited has compiled the following information for you. Type of financing Book Value (Rands) Market Value (Rands) Cost (%) Ordinary shares 6 000 000 22 000 000 14.50 % Preference shares 9 000 000 8 000 000 9.80% Long-term debt 2 000 000 2 000 000 9.00% Retained earnings 3 000 000 3 000 000 ???? The corporate tax paid by the company is 28% Required: 5.1 5.2 Calculate the respective weights of each type of financing in the firm in terms of book value and market value. (6 marks) Calculate the company's weighted cost of capital (WACC) using book value weights. (6 marks) Calculate the company's weighted cost of capital (WACC) using market value weights. (6 marks) Discuss, briefly the importance of using WACC as a discount factor for decision making. (2 marks) 5.3 5.4