Zebra Dynamics Ltd., a diversified engineering firm, is currently undergoing a strategic review of its capital financing. The Board of Directors has…

Zebra Dynamics Ltd., a diversified engineering firm, is currently undergoing a strategic review of its capital financing. The Board of Directors has set strict hurdles for new project approvals. The Chief Financial Officer (CFO) has stated that the company's Cost of Capital based on Book Value weights is currently 11%, while the Cost of Capital based on Market Value weights is exactly 150 basis points higher. Market Benchmarking Data To determine the cost of equity, the finance team has gathered data on two comparable peers, A Ltd. and B Ltd, which operate in the same economic environment. Their returns are driven by the Capital Asset Pricing Model (CAPM): Security Beta Expected CAPM Return A Ltd. 1.2 15.20% B Ltd. 0.8 12.80% Capital Structure: Book Value Terms: The company maintains a traditional balance sheet with an equal ratio of Equity and Debt.Market Value Terms: Due to market optimism, the company's equity trades at a premium. The Market Value of Equity is 3 times its Book Value, while the debt trades at par (Market Value of Debt equals Book Value). Debt Instrument Details The company's debt capital is raised entirely through Debentures with the following characteristics: Coupon Rate: 7% per annum.Issue Details: The debentures were issued at a discount of 10for 90.Redemption: They are redeemable at Par (100).Tenure: The debentures mature in 4 years. You have been hired as a financial consultant to (i) PROVIDE a detailed breakdown of the component costs.