Venture Capital.

The directors of Lmt plc have been in discussion with 5Ts, a listed venture capital company. As well as contributing equity, 5Ts would seek to spread the risk of their investment by also investing in the form of 4-year 5% secured redeemable bonds and also convertible preference shares. The risk adjusted return on similar bonds has been estimated at 6%.

Corporation tax is currently 30%.

Which TWO of the following statements concerning 5Ts' perspective are true?

Select one or more:

a. 5Ts' investment in the preference shares will have the lowest risk out of the three methods of finance offered due to the option to convert

b. 5Ts will accept a lower level of dividends on the convertible preference shares compared to normal preference shares

c. 5Ts are likely to prefer to use CAPM in valuing Lmt plc shares

d. The current shareholders of Lmt plc would be willing to sell a majority equity stake to 5Ts