Tugela Enterprises currently has 10 million ordinary shares in issue, which are selling for R8 each. The firm's recent financial statements reported earnings per share (EPS) of R1.40, and a return on equity (ROE) of 17.50%. The firm currently pays out 57% of earnings as dividends. Tugela has two debt issues:
1st Issue: Seventy-five thousand (75 000), 8% semi-annual coupon bonds, with a yield to maturity of 9.32% and 10 years to maturity.
2nd Issue: Sixty thousand (60 000), 6% semi-annual coupon bonds, with a yield to maturity of 6.7% and 6 years to maturity.
The tax rate is 30%.

1.Calculate Tugela’s cost of equity.
2. Calculate Tugela’s weighted average after-tax cost of debt.
3. Calculate Tugela’s weighted average cost of capital (WACC).
4. Prepare a report for the Board of Directors of Tugela Enterprises discussing issues that might influence a company’s capital structure strategy.

Answer rating: 100% (QA)

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