Noyana Company Ltd. is in the Telecommunications Industry. The company's balance sheet as at 31-March 2015...

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Noyana Company Ltd. is in the Telecommunications Industry. The company's balance sheet as at 31-March 2015 is as below: Liability and Owners Equity Current liabilities 18% debentures (sh.1,000 par) 10% preference shares Ordinary shares (Sh.10 par) Retained earnings Sh.'000' 12,500 16,000 6,250 12,500 28,125 75.375 Assets Current assets Net fixed assets Sh.'000' 32,500 42,875 75.375 Additional information The debentures are now selling at Sh.950 in the market and will be redeemed 10 years from now. By the end of last financial period, the company had declared and paid Sh.5.00 as dividend per share. The dividends are expected to grow at an annual rate of 10% in the foreseeable future. Currently, the company's shares are trading at Sh.38 per share at the local stock exchange. The preference shares were floated in 2000 and their prices have remained constant. Most banks are lending money at an interest of 22% per annum. The Corporation tax rate is 40% per annum. Required i. ii. Calculate the market weighted cost of capital for this firm. (12 marks) "The book-value weights should be used discreetly when computing weighted cost of capital". Why" (2 marks) Noyana Company Ltd. is in the Telecommunications Industry. The company's balance sheet as at 31-March 2015 is as below: Liability and Owners Equity Current liabilities 18% debentures (sh.1,000 par) 10% preference shares Ordinary shares (Sh.10 par) Retained earnings Sh.'000' 12,500 16,000 6,250 12,500 28,125 75.375 Assets Current assets Net fixed assets Sh.'000' 32,500 42,875 75.375 Additional information The debentures are now selling at Sh.950 in the market and will be redeemed 10 years from now. By the end of last financial period, the company had declared and paid Sh.5.00 as dividend per share. The dividends are expected to grow at an annual rate of 10% in the foreseeable future. Currently, the company's shares are trading at Sh.38 per share at the local stock exchange. The preference shares were floated in 2000 and their prices have remained constant. Most banks are lending money at an interest of 22% per annum. The Corporation tax rate is 40% per annum. Required i. ii. Calculate the market weighted cost of capital for this firm. (12 marks) "The book-value weights should be used discreetly when computing weighted cost of capital". Why" (2 marks)

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