1. Skyview ltd is a manufacturing company that specialises in ski lift systems. The company was incorporated in 2012, and after unprecedented levels of growth was successfully floated on the London Stock Exchange on 1 April 2017 at an issue price of 2.10 per share. The company now requires additional capital of 4 million to fund an expansion programme due to commence in 2022.

The current capital structure of Skyview ltd as at 31 March 2021 is as follows:

1. 1,000,000 ordinary 1 shares, currently trading at a market value of 321p ex div. A final dividend of 21p per share has recently been paid. After the first year of floatation, a final dividend of 16p per share had been paid and this level of growth was sustained annually and is expected to continue in the future.

2. 2,000,000 of irredeemable debt. This debt has a coupon rate of 8% (pre-tax) and an ex int market value of 78.

3. 5,000,000 of redeemable debt. This debt has a coupon rate at 5% (pre-tax) and is redeemable in five years time at par. The current ex int market value is 91.

Assume a 30% rate of corporation tax.

REQUIRED

1. Calculate the weighted average cost of capital (WACC) for Skyview ltd.

2. Explain the relevance of this WACC figure in relation to the investment decision, the financing decision, and the dividend decision, and discuss the extent to which the decisions are inter-related.