You are a consultant for Kathmandu and have been asked to calculate the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the firm's current capital structure as follows:

Source of capital	Market value
Bonds	314,036
Preference Shares	212,676
Ordinary Shares	507,471

The bonds of Kathmandu have the following details:

Time to maturity 12 years

Coupon rate 8% (semi-annually)

Market price $1,050

Face value $1,000

The preference shares of Kathmandu have the following details:

Dividend per share $3.40

Market value per share $33.00

The ordinary shares of Kathmandu have the following details:

Price per share $41.00

Dividend per share paid last year $7.00

Dividend growth rate 4%

The firms tax rate is 30%.

Answer the following questions based on the information provided above:

REQUIRED : Question 5

Calculate the discount rate that you should use to evaluate the warehouse project. Please show all supporting calculations.

Source of Capital	Weights	Cost of Capital	WACC
Debt
Ordinary Shares
Preference Shares

REQUIRED : Question 6

Kathmandu Ltd has a planned warehouse project has the following estimated cashflows for the life of the warehouse:

Initial Outlay $(1,759,036)

Year 1 to Year 3 Cash flows (116,406)

Year 4 to Year 8 Cash flows 412,810

Year 9 to Year 10 Cash flows 403,417

Calculate the NPV of the project and determine if the project should be accepted.

Answer the question by completing the following table:

Year	0	1	2	3	4	5	6	7	8	9	10
Cash flow
Discount Factor
Present Value
NPV