3. The preference shares were issued 15 years ago at a rate of 9%. Investors would require a return of 12% on their investment if new preference shares were issued today; with an issue price of R5 per share and flotation costs of R0,35 per share.

4. The company utilises the bank overdraft within the permanent capital structure. The level of usage of the overdraft fluctuates, however, the usage of the bank overdraft averages out at R8,5 million. The market interest rate on short term borrowings is 13%.

Assume a tax rate of 27% and that the target capital structure is represented by the values on the Statement of Financial Position.

Required:

1. Determine a revised weighted average cost of capital if the directors have now determined that the market values are a more accurate reflection of the target capital structure.
2. Discuss the potential impact on the cost of capital if each of the following were to occur: (i) If KZN Electronics decides to include investments within the pharmaceutical sector in an effort to diversify its risk. (ii) If KZN Electronics decides to reduce its dividend payout ratio by 40% and utilise the additional available funding to facilitate expansion of the company.

1. The growth rate of earnings per share over the past 10 years has remained constant at 15%. You have performed your own assessment and you are satisfied that this growth rate will be maintained. The company's earnings per share in 2023 was R30. The company has a dividend payout ratio of 0,60 . The share price as at the end of the 2023 financial year was R220 per share. Market analysts have assessed that this share price should expect to remain stable as the company has been assessed as being in its maturity phase. 2. The debentures were issued several years ago at a rate of 7,5%. Based on information that you have gathered; new 5 years debentures can be issued at 12% with negligible issue costs, while 10-year debentures can be issued at 12,5\%. The debentures held by KZN Electronics will be redeemable in 10 years' time