QUESTION ONE Mwewa Plc wishes to calculate its weighted average cost of capital and the following information relates to the company at the current time: Mwewa Plc expects share prices to rise in the future at an average rate of 6% per year. The convertible debt can be redeemed at par (K1,000) in eight years' time, or converted in six years' time into 15 shares of Mwewa Plc K1,000 bond. Required: (a) Calculate the market value weighted average cost of capital of Mwewa Plc. State clearly any assumptions that you make. (12 marks) (b) Discuss the circumstances under which the weighted average cost of capital can be used in investment appraisal. (4 marks) (c) Discuss whether the dividend growth model or the capital asset pricing model offers a better estimate of the cost of equity of a company. (4 marks) [Total: 20 marks]