Suppose you have been hired as a financial consultant to Shelby Appliances Ltd, a large publicly listed company. The company is looking at building a manufacturing plant to produce a new line of electricity saving appliances. The company estimates that it will cost R6.5 million to build the plant.

Consider the following current market data on Shelbys securities:

• Debt: 10 000, 7% coupon bonds, 15 years to maturity, selling at a discount of R900. The
• bonds have a R1 000 par value each and make semi-annual payments.
• Ordinary shares: 283 200 shares in issue, selling for R50 per share; the shares beta coefficient is 1.2.
• Preference shares: 10 000, 7.5% preference shares in issue selling for R84 per share.
• The preference shares have a par value of R100.
• Market: 8% expected market risk premium; 7% risk free rate.
• Other information: Shelbys pre-tax cost of debt is 8.17% and the applicable tax rate for Shelby is 28%.

2.1 Calculate the relevant market value capitalisation weights of the debt, preference shares and ordinary shares. Provide your final answers only on Moodle.

Debt Shares = a) Market Value

b) Weight

Ordinary Shares = c) Market Value

d) Weight

Preference Shares = e) Market Value

f) Weight