Following information is available about AOI Ltd

Following information is available about AOI Ltd.

Statement of financial performance extract

Liabilities

10% debentures ($100 par, coupon-annual) $11,000,000

Shareholders' funds

Ordinary shares ($1 par) $30,000,000

11% preference shares ($10 par) $6,000,000

Additional information

• An interest payment in relation to the debentures has just been made, and the debentures mature four years from today. The market rate of interest on the debentures is 12%.

• The preference shares are trading on the market at $10.00 each, and a dividend of 110¢ per share has just been paid.

• Forecasts in relation to market returns are as follows: expected risk-free rate of return = 6%; expected return on the market portfolio = 16.50%; and the systematic risk of AOI's ordinary shares represented by its beta is 1.25. These shares are trading on the market at $2.50 each.

• No company or personal taxes are levied.

• The existing capital structure is unlikely to change. 

Required:

(a) Calculate the market value of each of the sources of capital.

(b) Calculate the total market value of the firm.

(c) Calculate the weight/ proportion of each of the sources of capital to total market value of the firm.

(d) Calculate/determine the cost of each of the sources of capital.

(e) The weighted average cost of capital (WACC) of AOI Ltd based on the market values of the sources of capital.