This individual assessment represents 10% of your final grade 1.

As a financial analyst for the JA60 Ltd, you have been given the assignment of determining the companys cost of capital. Toward that end, the following information has been collected:

Present Capital Structure
Source of Capital	Par/Maturity Value	Total Book Value	Market Value
Debt (8%, 15 year)	$1,000	$8,000,000.00	$1,200 per bond
Preferred stock (8%)	$100	$2,000,000.00	$120 per share
Common stock	$10	$10,000,000.00	$20 per share

The companys last common dividend was $0.97. The year before that, a dividend of $0.91 was paid. The growth rate for dividends is expected to be constant for the foreseeable future. The companys tax rate is 35%.

a. Determine the weighted average cost of capital using market-value weights [20 marks]

b. The directors of JN60 have been told that they can reduce the overall cost of capital by issuing more long-term debt. Write a memo (in good form) outlining the extent to which increasing the gearing of the company could have the desired effect. [10 marks]

Note: State all formulas. All currency and percentage symbols should be shown.

Show answers to 2dp.

Marks will be awarded for expression.

Responses to part (b) should show a similarity index of no more than 10%.