Marble Co wishes to calculate its current weighted average cost of capital, as part of a review of the company's performance in delivering shareholder value. Dividends per share paid to ordinary shareholders in recent years are as follows:

Year                          20X7   20X6   20X5   20X4

Dividend ($/share)    0.80   0.78    0.73    0.69

The dividend for 20X8 of $0.84 per share is due to be paid shortly. Marble Co has in issue, 226milion ordinary shares with a nominal value of $0.50 per share and a current cum dividend share price of $11.93 per share.

Marble Co also has in issue, 20 million preference shares with a nominal value of $1.00 per share and a current ex dividend market price of $2.27 per share. A 25% per share preference dividend has just been paid.

Marble Co is partly financed by 6.5% convertible loan notes with a total nominal value of $94mInterest on the loan notes has just been paid and the loan notes have an ex-interest market value of $107.11 per $100 nominal value loan note. At the end of five years, the loan notes will either be redeemed at nominal value or converted into eight ordinary shares of Marble Co, per loan note.Future share price growth is expected to be 6% per year. The loan notes are secured on the non-current assets of Marble Co.

Marble Co pays corporation tax of 26%.

Using market values, calculate the after-tax weighted average cost of capital of Marble Co.(11 marks)(a)Using market values, calculate the after-tax weighted average cost of capital of Marble Co.(11 marks)

Discuss the relative merits of the capital asset pricing model and the dividend growth model in calculating the cost of equity.(4 marks)

Explain the connection between the creditor hierarchy and the relative costs of sources of finance.(5 marks)