QUESTION 1 (continued) 3. Debentures Debentures mature in 10 years' time at a discount of 3%....

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QUESTION 1 (continued) 3. Debentures Debentures mature in 10 years' time at a discount of 3%. The debentures carry an interest rate of 16% (before tax) per annum. The prime interest rate decreased since and similar debentures are currently trading at a rate of 13% (before tax) per annum. 4. Trade and other payables Trade creditors are paid within the credit period without any interest charged or discount received. The long-term financing structure does not include any credit (financing) that relates to working capital. 5. Bank overdraft The bank overdraft rate is 20% per annum and it forms part of the normal working capital funding. 6. 2024 expansion strategy The strategy for 2024 is to expand the current service offerings to the Western Cape area. This expansion will amount to R310 million. The project will be financed in the ratio of 60% equity and 40% debt. R143 million of the retained earnings are available for funding of the expansion. The new ordinary shares will be issued at the current market value. Issue cost of 3% will apply. 7. Other The current tax rate is 27%. You may ignore dividend tax. Cost of capital is calculated based on the market values. REQUIRED: (a) Calculate the weighted average cost of capital (WACC) based on the current capital structure for 2023 by making use of the market values. (Make use of your financial calculator where applicable and include the steps on the financial calculator in your answer sheet.) (20) (b) Calculate the number of ordinary shares that must be issued in order to finance the expansions. (5) Total for Question 1 (25) QUESTION 1 (continued) 3. Debentures Debentures mature in 10 years' time at a discount of 3%. The debentures carry an interest rate of 16% (before tax) per annum. The prime interest rate decreased since and similar debentures are currently trading at a rate of 13% (before tax) per annum. 4. Trade and other payables Trade creditors are paid within the credit period without any interest charged or discount received. The long-term financing structure does not include any credit (financing) that relates to working capital. 5. Bank overdraft The bank overdraft rate is 20% per annum and it forms part of the normal working capital funding. 6. 2024 expansion strategy The strategy for 2024 is to expand the current service offerings to the Western Cape area. This expansion will amount to R310 million. The project will be financed in the ratio of 60% equity and 40% debt. R143 million of the retained earnings are available for funding of the expansion. The new ordinary shares will be issued at the current market value. Issue cost of 3% will apply. 7. Other The current tax rate is 27%. You may ignore dividend tax. Cost of capital is calculated based on the market values. REQUIRED: (a) Calculate the weighted average cost of capital (WACC) based on the current capital structure for 2023 by making use of the market values. (Make use of your financial calculator where applicable and include the steps on the financial calculator in your answer sheet.) (20) (b) Calculate the number of ordinary shares that must be issued in order to finance the expansions. (5) Total for Question 1 (25)