Areva Resources Namibia Ltd. undertook a project involving the construction of a seawater desalination plant near Swakopmund. The project was completed on 01 January 2017 at a cost of N$10 000 000. The directors of Areva Resources believe their multi-million-dollar project shall be able to supply all the water to be consumed at some 40km into the dessert. After 5 years, the company has an obligation to dismantle and restore the environment in compliance with both the Ministry of Marine Resources & Fisheries and the Ministry of Environment & Tourism regulations. Management of Areva Resources has established that the cost of dismantling and restoration of the environment was NS4 000 000 on 1 January 2017. Areva Ltd. would want to evaluate several investment opportunities as well as to understand the overall risk of their assets as perceived by the market. Accordingly, the directors have set out to calculate the weighted average cost of capital (WACC) for the company. The assets of the company are currently financed by equity, bonds and preference shares. The details are as follows:

Debt: The company issued 10 000 bonds that are currently outstanding with a 6% annual coupon rate. The bonds mature in eight years and have a NS1 000 face value. These bonds are currently trading in the market for NS1 100. Preference shares: The company also has in issue 3% Preference shares with a par value of NS100 each amounting to 100 000 shares. These preference shares are perpetual shares that are not redeemable at any time. The preference shares are currently selling for N$30 per share in the market. Equity: The company has 500 000 shares currently selling for NS25 each in the market. The shares have a beta of 1.5. The risk-free rate is 4%, and the expected market return is 12%. Recently, the company paid a dividend of N$2.32 per share and management expect that the growth in dividends will be 6% per share, forever. Tax rate is 20%. REQUIRED MARKS a) | Estimate the pre-tax cost of debt as well as the after-tax cost of debt. (6) b) | Calculate the cost of the companys preference shares. (3) c) | Determine the cost of equity using the Dividend Growth Model (3) d) | Determine the cost of equity applying the Capital Asset Pricing Model (CAPM) (3) e) Calculate the Weighted Average Cost of Capital using the CAPM for the cost of equity. (7) f) State any three reasons for calculating the WACC (3) TOTAL MARKS 25