You are a personal investor investigating the possibility of investing in Pulleys and Plugs Ltd. Which is a taxation category 2 company. You have a required rate of return of 10% per annum and, as such, need to identify the rate of return demanded by the investors in Pulleys and Plugs to compare to your required rate. You have identified the following characteristics of Pulleys and Plugs. The latest balance sheet for the Pulleys and Plugs shows: Long Term Debt Bonds: Book Value ($) 6,000,000 Issued at par: $100 Annual coupon of 14% 8 years to maturity Equity Preference Shares: 1,000,000 100,000 shares outstanding Ordinary Shares: 5,000,000 5,000,000 shares outstanding The company's bank has advised that the interest rate on any new debt finance provided for new projects would be 9% p.a. The company's preference shares currently sell for $13.56 each and pay an annual dividend of $2.20. The company's existing ordinary shares currently sell for $0.87 each and pay a dividend per share of $0.10 which has just been paid to shareholders. Historically, dividends have increased at an annual rate of 5% p.a. and are expected to continue to do so in the future. Pulleys and Plugs' company tax rate is 30%. REQUIRED: a) Determine the market value proportions of debt, preference shares and ordinary equity comprising the company's capital structure. (12 marks) b) Calculate the after-tax costs of capital for each source of finance. (5 marks) c) Determine the after-tax weighted average cost of capital for the company. (3 marks) d) How does the cost of debt capital relate to the value of a debt security? (4 marks) e) Based on your calculations determine whether it is a good idea (or not) to invest in Pulleys and Plugs