Atukuzwe Co$.$ is planning to expand its operations to meet the increasing demand. The company's CEO, You tasked with determining the optimal financing strategy for the expansion project. Current capital structure consists of $60\%$ equity and $40\%$ debt. The company's cost of equity is estimated at $12\%,$ and its pre$-$tax cost of debt is $8\%.$ Current WACC is calculated as $9\mathrm{.}2\%.$ The expansion project requires an initial investment of TZS $500$ million in equipment and infrastructure. The project is expected to generate annual cash flows of TZS $150$ million for the next five years. Tax rate is $25\%.$

Case Questions:

a$)$ You need to evaluate the impact of Atukuzwe$$s current capital structure on its cost of capital and determine whether any adjustments are necessary for the expansion project.

i$.$ Calculate the company's weighted average cost of capital $($WACC$)$ based on the provided capital structure and cost of capital data.

ii$.$ Assess the implications of the current capital structure on the cost of capital and overall financial performance.

iii. Recommend potential changes to the capital structure to optimize the cost of capital for the expansion project.

b$)$ Effective working capital management is crucial for supporting the expansion project and ensuring smooth operations.

i$.$ What are your suggestions about working capital cycle and areas for improvement.

ii$.$ Evaluate the liquidity, profitability, and risk implications of the company's current working capital policies.

iii. Recommend strategies to optimize working capital efficiency while maintaining adequate liquidity for the expansion project.

c$)$ Every business decision involves inherent risks, assess the risks associated with the expansion project.

i$.$ Identify and analyze the key risks facing expansion initiative, including market risk, technological risk, and regulatory risk.

ii$.$ Quantify the project's risk$-$adjusted return using techniques such as the Capital Asset Pricing Model $($CAPM$)$ and beta analysis.

iii. Analyze the risk$-$return tradeoff of the expansion project and determine whether the potential rewards justify the associated risks.