the following is the capital structure of xyz ltd as at 31/12/2002

ordinary share capital shs 10par value shs 400m

retained earning s shs 200m

10%preference share capital shs20 per shs100m

12%debentures shs 100par value shs 900

addintional information

1.corporate tax rate 30%

2. preferences shares were issued 10 years ago and are still selling at bpar value mps =par value

3.the debentures has 10 years maturity period it is currently selling at shs90

4.currently the firm has paying divided per share of shs5 the dps is expected to grow at 5 %p.a in future the current mps is shs 40 required is

a) determine the WACC of the firm

b)explain why market values and not book values are used to determine the weight

c)what are the weakness associated with WACC when used as discounting rate in project appraissail