Weighted Average Cost of Capital. a) Suppose company AA has issued 10 million shares which are trading at GH10 each. It has also issued 2 million preference shares trading at GH8, and its 1,000 bonds are trading at GHS10,000 each. Describe the firms capital structure in percentages. [4 marks] b) Suppose investors require the following rates of return if they are to buy the securities of A: Common shares: 36% Preferred shares: 28% Long-term debt: 24% i) To meet these rates of return annually and keep investors happy, how much must AA generate? A pays 25% corporate tax. [6 marks]

ii) What is As Weighted Average Cost of Capital? [3 marks]

iii) Which class of investors benefits if A generates more? [2 marks]

iv) What happens if A generates less? [2 marks]