Section B - This question is COMPULSORY and MUST be attempted 16. BestGoods Plc is a retail company with securities listed on a large exchange. The company has the following capital structure: fm Em Equity and reserves Common shares (0.25 per share nominal value) 23 Reserves 247 270 Non-current liabilities 6% Bond (100 nominal value) 11 5% Preference shares (El per share nominal value) 5 15 year bank loan 19 289 The common shares have a beta of 1.3. The risk free rate is 4% and the return on the market portfolio is 9%. The directors of BestGoods Plc expect to increase dividends on common shares at a rate of 6% per year. The next dividend payable in one year's time. will be 0.09 per share The bond is a 20 year-term bond, and was issued 8 years ago. The bond pays an annual coupon of 6%. The current yield-to-maturity is 6.5%, and the current market price of the bond is 95.92 The 5% preference shares have an ex-dly market value of 0.56 per share. The shares are irredeemable The bank loan is secured against a department store and has a fixed interest rate of 5% per year. The loan was issued 3 years ago Required: a) Ignoring taxes, calculate the following values for BestGoods Pic: 1. The current price of common shares, using the dividend growth model: (7 marks) #l. The current weighted average cost of capital, using market values, (9 marks) fli. An appropriate discount rate for a project with a beta of 0.7. (4 marks) b) Outline the benefits and limitations of using the CAPM method over WACC to determine project-specific discount rates, (15 marks) c) Discuss whether a change in dividend policy will affect the price of BestGoods common shares (25 marks)