[25] QUESTION THREE Speedy Gonzales is a courier services company. The company needs to replace a few of its older vehicles to improve service delivery and reduce costs. As a financial consultant, you are appointed to calculate the cost of capital. The following information is presented to you in respect to the company's capital structure: 1) 3 million R1 ordinary shares, currently trading at R4 per share 2) 2 million 12% R2 preference shares, currently trading at R3 per share 3) R1 million, 14% debentures, with a current yield-to-maturity of 11%, due in 6 years 4) Bank loan: R800 000 at 16% interest per annum, maturing in 7 years Additional information: The company has a beta factor of 1.5 and a risk free rate of 6%. Its tax rate is 30% and the return on market is 15%. The current dividend paid on the ordinary shares is 80 cents per share and a growth rate of 13% is maintained. Required: 3.1 Calculate the weighted average cost of capital. (Use the Capital Asset Pricing Model to calculate the cost of equity.) (20) 3.2 Discuss the advantages and disadvantages of using the Capital Pricing Model