Use the following information about RLB Ltd.'s capital structure to answer the questions below;

Extreme's capital structure is made up of:

CAPITAL STRUCTURE

DEBT

• Bonds

EQUITY

• Preference Shares
• Ordinary Shares

Rlb Ltd. has 120,000 bonds outstanding with a face value of $100 each. These bonds have 3 years to maturity and pay an annual coupon of 6%. RLB's statutory corporate tax rate is 30%.

SH's Corporation is one of a big ratings agency which has given RLB Ltd. a debt rating of AAA. The following table shows the risk premium available in the market based on debt ratings:

Debt rating Risk premium

AAA 5.0%

AA 6.5%

BBB 7.2%

BB 7.5%

The risk free rate is 1%.

RLB Ltd. has issued 7 million preference shares, which pay an annual dividend per share of $0.25. They are currently trading at $2 each.

RLB Ltd.has issued 10 million ordinary shares, which are currently trading at $4 each.Shareholders are to receive a dividend of $0.60 per share in the current year, and this dividend is estimated to grow at a constant rate of 3% in perpetuity.

1.What is RLB's aftertax cost of debt?

2.What is the value of RLB's bonds?

3.What is the market value of RLB's preference shares?

4.What is RLB 's cost of preference shares?

5.What is the market value of RLB 's ordinary shares?

6.What is RLB 's cost of ordinary shares?

7.What is RLB 's WACC (Weighted Average Cost of Capital)? Show workings.

8.Assume the preference shares issued by RLB Ltd. are cumulative. Assume the company doesn't pay any dividends this year on both Preference and Ordinary Shares. Nonetheless, next year, the company estimates that $4 million will be available to be paid out as dividends. Calculate the dividends per share the ordinary shareholders are expected to receive next year. Show workings.