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Damelin (20 Marks) QUESTION 6 Sanchez & Gomez Limited are considering a change in capital...

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Damelin (20 Marks) QUESTION 6 Sanchez & Gomez Limited are considering a change in capital structure: Current Debt 35% Preference shares 15% Ordinary share equity 50% The after-tax cost of debt is 6.5%, the cost of preference shares is 10% and the cost of ordinary equity is 13.5% The alternative offers an after-tax cost of debt of 8.8%, cost of preference shares is 11% and the cost of equity is 15.6% Alternative Structure: Debt 60% Preference shares 5% Ordinary share equity 35% Required: a) Calculate the weighted average cost of capital under the current structure b) Calculate the weighted average cost of capital under the alternative structure c) Mention some of the assumptions of the CAPM and DOM (8) (7)

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