As-you-like-it (LTD) is a company that is listed on the stock exchange and is seeking investment opportunities in sub-Saharan Africa. The company capital structure consists of ordinary shares and a 10-year loan that they obtained from a bank. Government bonds are currently trading at 6% and the market risk premium is 4%.

Additional information is provided for you:

• The beta of As-you-like-it (LTD) is 1.25;
• As-you-like-it (LTD) has just paid a dividend of R1.50 per share;
• The cost of debt before tax is 9%, with a market value of R3-million;
• The tax rate is 28%;
• Profits for As-you-like-it (LTD) are growing consistently at 5% per year; and
• The company has 200,000 ordinary shares in issue.

QUESTION:

Calculate the weighted average cost of capital for As-you-like-it (LTD) and draw comparisons with the market return.