QUESTION 1 (20 marks) The following information regarding SAA Engineering Limited's current financial situation is available: Cost of equity Ordinary shares issued Share price per share EBIT Market value of debt Cost of debt 14% 700 000 R35 R3 600 000 R2 500 000 9% (pre-tax) The company's market is stable and they expect no growth. All earnings are paid out as dividends. If they increase their debt so that their capital structure has 50% debt, the cost of equity will rise to 17,3% and the interest rate on all debt will rise to 11,5% (pre-tax). The current tax rate is 28%. ) DO REQUIRED: a) Calculate the total market value (market capitalisation) of SAA Engineering Limited's issued ordinary shares. (2) b) Calculate the total market value of SAA Engineering Limited. (2) Calculate the current weighted average cost of capital (WACC) of the company. (6) Calculate the weighted average cost of capital of the company if they increase their debt to 50% of their capital structure. (6) e) Calculate the value of the 50% equity (Guidance: use the dividend growth model to determine the market value of the shares, Po) (4) [20]