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Canada Cranes is looking to determine its cost of capital and has asked you to assist. Information available includes the following: Preference Shares: The preference shares were issued for $20 with a 6% dividend. The current market price is $23. There are 15 million shares on issue Debt: The debt that the firm has issued was issued 10 years ago and has 10 years left to maturity. The bonds pay a semi-annual coupon of 14% pa. The bonds were issued for $1000 each and are currently valued at $1000 each. There are 150,000 bonds on issue Ordinary Shares: . These shares currently trade for $10. The Beta of these shares is 1.5, the market risk premium is 8% and the risk-free rate is 4% These shares last paid a dividend of 75 cents with expected growth of 2%. There are 150 million shares on issue Other Information: Canada Cranes' tax rate is 25%. Calculate the following: A) Determine the EAR of the YTM for the debt that matures in 10 years. (2 Marks) Please answer as a decimal to 4 decimal places. Answer: B) Determine the required return on the preference equity. (2 Marks) Please answer as a decimal to 4 decimal places. Answer: C) Determine the required return of the ordinary equity using the CAPM. (2 Marks) Please answer as a decimal to 4 decimal places. Answer: D) Deterinine the required return of the ordinary equity using the dividend discount model (DDM). (2 Marks) Please answer as a decimal to 4 decimal places. Answer: E) Determine the weight of debt, ordinary equity and preference equity to be used in the calculation of the after tax WACC. (3 Marks) Please answer as a decimal to 4 decimal places. Answers: Weight Debt Weight Ordinary Canada Cranes is looking to determine its cost of capital and has asked you to assist. Information available includes the following: Preference Shares: The preference shares were issued for $20 with a 6% dividend. The current market price is $23. There are 15 million shares on issue Debt: The debt that the firm has issued was issued 10 years ago and has 10 years left to maturity. The bonds pay a semi-annual coupon of 14% pa. The bonds were issued for $1000 each and are currently valued at $1000 each. There are 150,000 bonds on issue Ordinary Shares: . These shares currently trade for $10. The Beta of these shares is 1.5, the market risk premium is 8% and the risk-free rate is 4% These shares last paid a dividend of 75 cents with expected growth of 2%. There are 150 million shares on issue Other Information: Canada Cranes' tax rate is 25%. Calculate the following: A) Determine the EAR of the YTM for the debt that matures in 10 years. (2 Marks) Please answer as a decimal to 4 decimal places. Answer: B) Determine the required return on the preference equity. (2 Marks) Please answer as a decimal to 4 decimal places. Answer: C) Determine the required return of the ordinary equity using the CAPM. (2 Marks) Please answer as a decimal to 4 decimal places. Answer: D) Deterinine the required return of the ordinary equity using the dividend discount model (DDM). (2 Marks) Please answer as a decimal to 4 decimal places. Answer: E) Determine the weight of debt, ordinary equity and preference equity to be used in the calculation of the after tax WACC. (3 Marks) Please answer as a decimal to 4 decimal places. Answers: Weight Debt Weight Ordinary

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