Question $3$

Kea $($Pty$)$ Ltd$.$ has the following capital structure as of $28$ February $2022$:

ZAR

Debentures @$10\%$ interest p$.$a$.7\mathrm{.}2$ million

Preference shares @$9\%$ dividend $4\mathrm{.}8$ million

$600,000$ ordinary shares of R $10$ each $6$ million

The ordinary shares of the company are quoted at R$10$ and the company is expected to declare a dividend of R$0\mathrm{.}90$ per share for $2022.$ The company has registered a dividend growth rate of $5\%$ which is expected to be maintained. The tax rate applicable to the company is $27\%.$

Calculate:

The weighted average cost of capital. $(13$ Marks$)$

The revised weighted average cost of capital, if the company raises an additional term loan of R$6$ million at $12\%$ interest p$.$a$.$ for expansion. In such a situation the company can increase the dividend from R$0\mathrm{.}9$ to R$1$ per share but the market price of the share would go down to R$9.(12$ Marks$)$