YGV Co is a listed company selling computer software. Its profit before interest\ and tax has fallen from $5 million to $1 million in the last year and its current\ financial position is as follows:\ Non-current Assets $ $\ Property, plant and equipment 3,000,000\ Intangible assets 8,500,000 11,500,000\ Current Assets\ Inventory 4,100,000\ Trade receivables 11,100,000 15,200,000\ Total Assets 26,700,000\ Equity\ Ordinary shares 10,000,000\ Reserves 7,000,000 17,000,000\ Prepared by Lec. CHREA Kosalsola Assignment BAF301\ Current Liabilities\ Trade payables 5,200,000\ Overdraft 4,500,000 9,700,000\ Total equity and liabilities 26,700,000\ YGV Co has been advised by its bank that the current overdraft limit of $4.5 million will\ be reduced to $500,000 in two months time. The finance director of YGV Co has been\ unable to find another bank willing to offer alternative overdraft facilities and is planning\ to issue bonds on the stock market in order to finance the reduction of the overdraft.\ The bonds would be issued at their par value of $100 per bond and would pay interest\ of 9% per year, payable at the end of each year. The bonds would be redeemable at a\ 10% premium to their par value after 10 years. The finance director hopes to raise $4\ million from the bond issue.\ The ordinary shares of YGV Co have a par value of $1.00 per share and a current\ market value of $4.10 per share. The cost of equity of YGV Co is 12% per year and the\ current interest rate on the overdraft is 5% per year. Taxation is at annual rate of 20%.\ Other information\ Average gearing of sector (debt/equity, market value basis): 10%\ Average interest coverage ratio of sector: 8 times\ Required (30pts)\ a. Calculate the after-tax cost of debt of the 9% bonds.\ b. Calculate and comment on the effect of the bond issues on the weighted\ average costs of capital of YGV Co, clearly stating any assumptions that\ you make.\ c. Calculate the effect of using the bond issue to finance the reduction in the\ overdraft on\ i. The interest coverage ratio\ ii. Gearing\