$[$Total: $25$ Marks$]$

QUESTION SIX $.$

A$.$ Spire ple has a debt:equity ratio of $1$:$1.$ The risk$-$free rate of return is $4\%,$ the equity risk premium derived from the market is $6\%$ and the gross cost of debt is $4\%.$ Its beta is $1\mathrm{.}5$ and assume any profit is taxed at $30\%.$

Required

a$)$ Calculate its weighted average cost of capital.

$(7$ Marks$)$

b$)$ Spire is concerned about its high debt:equity ratio. If Spire were to repay all debt, what would be the required return to equity?

$(6$ Marks$)$

B$.$ The following is an extract from the balance sheet of Makwebo Plc at ${31}^{st}$ April:

$\backslash$table$[[,$K$\text{'}000],[,5,200],[$Ordinary shares of K $0\mathrm{.}50$ each,$4,500],[9\%$ preference shares of $K1\mathrm{.}00$ each,$5,000],[9\mathrm{.}1\%$ net of tax debentures,$14,700$