You are currently working as a finance manager at Empire Group (‘Empire’) which operates a chain of retail outlets selling sports apparel.

Empire is seeking to expand their business into China and is exploring different methods to finance this expansion. They have the following requirements:

Prefers to pay a dividend that is a fixed percentage of the amount of financing received

Do not wish to increase their debt ratio through this financing activity

Do not wish to dilute existing shareholders’ control of the company

Advise Empire on the type of financing that is most suitable for them.

[4 marks]

Empire paid S$500,000 to France Bank Limited to purchase a 180 days certificate of deposit. Interest payable on the certificate of deposit is 4% per annum.

On the maturity date, Empire converted all the amount received from the above investment into US dollars based on the following foreign exchange quote:

US Dollar = 1.37 Singapore Dollar

Calculate the total value in US dollars that Empire will receive, rounded off to 2 decimal places. (Assume there are 365 days in a year).

[4 marks]

You have the following information about Empire:

Cost of debt (before tax)	3%
Cost of equity	5%
Market value of debt	$100 million
Book value of equity	$200 million
Number of shares issued	150 million
Current share price	$2.00
Corporate tax rate	17%

Calculate Empire’s weighted average cost of capital (‘WACC’). Show your workings clearly, and round off your answers to 2 decimal places.