QUESTION $4$:

Read the case study$/$ scenario below and answer the question based on the

case study.

LK $($Pty$)$ Ltd $($LK$)$ has three sources of finance, and the Chief Financial Officer has tasked

you with the WACC calculation for the $2021$ financial year.

All information required to complete the calculation has been given below:

Ordinary Shares

The dividend declared for $2021$ is R$250000$ and the dividend yield of LK is estimated

to be $11\%.$ There are $100000$ ordinary shares in issue.

Preference Shares

These are $10\%$ preference shares convertible into ordinary shares in $2024.$ The offer

for conversion is one ordinary share for every four preference shares held. It is

estimated that these preference shares have a market rate of $18\%.$ The book value of

the preference shares is R$4$million and the price per preference share is R$5.$

Debentures

These debentures are non$-$convertible and non$-$redeemable and their current yield to

maturity is $20\%$ and their market value is R$14$million.

Additional Information:

Extract from the statement of comprehensive income:

The tax rate is $28\%.$

Calculate the weighted average cost of capital $($WACC$)$ for LK for the $2021$ financial

year.