$$Question $3(20$ marks$)$

Big Daddy Limited is a Walvis Bay based company that manufactures world class garments for the consumers in Namibia and abroad. As part of their diversification strategy, the company envisages a need to invest in Eenhana Pharmaceutical Limited $($EPL$)$ that would require them to raise N$$5$ million. The company is not sure in what proportions it should raise these needed funds but the management has decided to use their current statement of financial position as a benchmark. The company$$s management are anxious to know how this new funding requirement is going to impact their current operations and therefore are eager to know what their current cost of capital is$.$

Big Daddy Limited Statement of Financial position as at $31$ March $2024$

ASSETS $$ N$ $000$

Non$-$current assets $2475000$

Property, Plant and Equipment $2475000$

Current assets $525000$

Inventories $111000$

Trade Receivables $313000$

Cash and Cash equivalents $101000$

Total Assets $3000000$

EQUITY AND LIABILITIES

$$Equity $2820000$

Ordinary shares @ N$$40/$share $600000$

$2\%$ Preference shares @N$$30/$share$300000$

Retained earnings $1920000$

Non$-$current liabilities $100000$

$4\%$ Irredeemable Debentures $100000$

Current liabilities $80000$

Trade payables $55000$

Short term borrowings $25000$

Total Equity and Liabilities $3000000$

$1.$ Property, Plant and Equipment is comprised of the following carrying amounts: N$$000$ Land Buildings $1900000$ Plant and Equipment $450000$ Fixtures and Fittings $125000$

$2.$ Big Daddy Limited$$s board recently agreed a full year dividend per ordinary share of N$$2$ to be paid in two weeks$$ time. Big Daay Limited expects to pay a dividend for the next year of N$$2\mathrm{.}20.$ This average annual rate of growth in dividends is expected to recur in future years. Ordinary shares are presently trading at N$$32\mathrm{.}50.$

$3.$ The preference shares are not redeemable. Preference shares have a market value of N$$26\mathrm{.}00.$ All preference share dividends have been paid for the year ended $31$ March $2024.$

$4.$ Irredeemable debentures are trading at $60\%$ of their par value. Debenture interest is paid annually. All payments relating to the year ended $31$ March $2024$ have been made in full.

$5.$ Corporation tax of $20\%$ is payable on profits in the year in which profits are reported.

REQUIRED MARKS $(20)$

Determine Big Daddy Limited$$s weighted average cost of capital $($WACC$)($show all your workings$)$