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Part B Cost of Capital (Show all workings 50 marks) GrainwavesLtd is an Australian firm which is publicly-listed on the ASX. Thecompany has a long term target capital structure of 55% OrdinaryEquity, 5% Preference Shares, and 40% Debt. All of the shareholdersof Grainwaves are Australian residents for tax purposes. To fund amajor expansion Grainwaves Ltd needs to raise a $150 million incapital from debt and equity markets. Grainwaves Ltd’s brokeradvises that they can sell new 10 year corporate bonds to investorsfor $105 with an annual coupon of 6% and a face value of $100.Issue costs on this new debt is expected to be 1% of face value.The firm can also issue new $100 preference shares which will pay adividend of $7.50 and have issue costs of 2%. The company alsoplans to issue new Ordinary Shares at an issue cost of 2.5%. Theordinary shares of Grainwaves are currently trading at $4.50 pershare and will pay a dividend of $0.15 this year. Ordinarydividends in Grainwaves are predicted to grow at a constant rate of7% pa. i. Calculate how much debt Grainwaves will need to issue tomaintain its target capital structure. ii. What will bethe appropriate cost of debt for Grainwaves. iii.Calculate how much Preference Share equity Grainwaves will need toissue to maintain their target capital structure. iv.What will be the appropriate cost of Preference shares forGrainwaves? v. Calculate how much Ordinary Share equityGrainwaves will need to issue to maintain their target capitalstructure. vi. What will be the appropriate cost ofOrdinary Equity shares for Grainwaves? vii. Calculate howthe Weighted Average Cost of Capital for Grainwaves Ltd followingthe new capital raising. viii. Grainwaves Ltd has acurrent EBIT of $1.3 million per annum. The CFO approaches theBoard and advises them that they have devised a strategy which willlower the company’s cost of capital by 0.5%. How will this changethe value of the company? Support your answer using theory andcalculations.