Valley PLC is a leading company in Australia and you the below details relating to the capital structure of the company.

Information concerning raising new capital

Bonds $1,000 Face value 13% Coupon Rate (Annual Payments)

QUESTION TWO COMPREHENSIVE QUESTION (CAPM, WACC, CF ANALYSIS) (15 Marks)

Preference Shares Ordinary Shares

20 Term (Years) $25 Discount offered (required) to sell new bonds $10 Flotation Cost per bond

11% Required rate to sell new preference shares $100 Face Value

$3 Flotation cost per share $83.33 Current Market Price

$4.00 Discount on share price to sell new shares

Dividend History

$5.40 Flotation Cost per bond $5.00 2021 - Proposed Dividend $4.63 2020 $4.29 2019

$3.97 2018 $3.68 2017 $3.40 2016

a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available.

Current Capital Structure

Extract from Balance Sheet $1,000,000

Long-Term Debt Preference Shares Ordinary Shares Long-Term Debt Preference Shares Ordinary Shares

Current Market Values

$800,000 $2,000,000 $2,000,000

$750,000 $4,000,000

Tax Rate 33% Risk Free Rate 5%

Valley PLC is a leading company in Australia and you the below details relating to the capital structure of the company.

Information concerning raising new capital

Bonds $1,000 Face value 13% Coupon Rate (Annual Payments)

QUESTION TWO COMPREHENSIVE QUESTION (CAPM, WACC, CF ANALYSIS) (15 Marks)

Preference Shares Ordinary Shares

20 Term (Years) $25 Discount offered (required) to sell new bonds $10 Flotation Cost per bond

11% Required rate to sell new preference shares $100 Face Value

$3 Flotation cost per share $83.33 Current Market Price

$4.00 Discount on share price to sell new shares

Dividend History

$5.40 Flotation Cost per bond $5.00 2021 - Proposed Dividend $4.63 2020 $4.29 2019

$3.97 2018 $3.68 2017 $3.40 2016

a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available.

Current Capital Structure

Extract from Balance Sheet $1,000,000

Long-Term Debt Preference Shares Ordinary Shares Long-Term Debt Preference Shares Ordinary Shares

Current Market Values

$800,000 $2,000,000 $2,000,000

$750,000 $4,000,000

Tax Rate 33% Risk Free Rate 5%