Task 2: (40 marks) Sameer plc, a listed industrial Company, is considering a major investment. The Company needs an appropriate rate at which to discount the estimated after-tax cash flows for the investment. The Companys normal practice is to be based on the weighted average cost of capital (WACC). The Companys balance sheet shows 160 million Ordinary shares of OMR 0.50 each at OMR 80 million, the Preference shares of OMR 32 million and 8% Loan stock of OMR 45 million. The Ordinary shares have a market price of OMR 2.100 and an expected dividend of OMR 0.180 per share. Dividends have shown an average annual growth rate of 5% over recent years. The Companys Preference shares are selling at OMR 0.870 per share and carry a dividend of 7% per share. The Company currently has Loan stock with an 8 percent coupon rate and has a market value of OMR 100. The Loan stock is redeemable at par. The corporation tax rate is expected to be 30% for the foreseeable future. In regard to this topic, you are required to prepare a report of 1,200 words

a. Compute the cost of capital for individual components and calculate the Companys WACC. (300 words) b. Explain the workings and discuss the assumptions of cost of capital. (400 words) c. Critically discuss the criticisms of using the figure calculated in (a) as the discount rate for assessing the investment under consideration by the Company. (300 words) d. Recommendations and conclusions. (200 words)