SECTION A COMPULSORY Question One The following information relates to a company listed on Luse - Mungwi PLC Issued share capital (1000 shares) Share premium Reserves Share holders funds 6% Irredeemable Debentures 9% Redeemable Debentures Bank Loan Total Long Term Liabilities ZMK Million 4 000 2 600 290 6 890 2 800 2 900 1 000 6.700 The current cum interest market value per K100 unit is K103 and K105 for the 6% and 9% debentures respectively. The 9% debenture is redeemable at par in 10 years time. The bank loan bears interest rate of 2% above the base rate (current base rate is 15%). The current ex-div market price of shares is K1, 100 and a dividend of K100 per share which is expected to grow at a rate of 5% per year has just been paid. The effective corporation tax rate for Mungwi is 30%. Required: A) Calculate the effective after tax Weighted Average Cost of Capital (WACC) for Mungwi PLC (20marks) B) Using the traditional theory of capital structure explain what would happen if the company took on additional debt finance. (10marks)

The following information relates to a company listed on Luse - Mungwi PLC The current cum interest market value per k100 unt is K103 and K105 for the 6% and 9% debentures respectively. The 9% debenture is redeemable at par in 10 years time: The bank foan bears interest rate of 2% above the base rate (curent base rate is 15% The current ex-div markel price of shares is KI:100 and a dividend of k100 per share Which is expected to grow at a rate of 5% peryear has just been paid. The effeotive corporation lax rate for Mungwi is 30% Required: A) Calculate the effective altertax Weighted Averane Cost of Cantacthisce) for MangwiplCop B) Using the traciliona theory of oopital glrucite exparin what woud nappen if the The following information relates to a company listed on Luse - Mungwi PLC The current cum interest market value per k100 unt is K103 and K105 for the 6% and 9% debentures respectively. The 9% debenture is redeemable at par in 10 years time: The bank foan bears interest rate of 2% above the base rate (curent base rate is 15% The current ex-div markel price of shares is KI:100 and a dividend of k100 per share Which is expected to grow at a rate of 5% peryear has just been paid. The effeotive corporation lax rate for Mungwi is 30% Required: A) Calculate the effective altertax Weighted Averane Cost of Cantacthisce) for MangwiplCop B) Using the traciliona theory of oopital glrucite exparin what woud nappen if the