MasterCraft Ltd, operate in the tool and dye industry. The Manufacturing Manager, Sipho Mabuse, feels that some of their tools and presses are showing serious signs of wear and tear and are about a year from the end of their useful life in a top notch industrial plant. Sipho has concluded that the business needs to devise a plan to finance the replacement of these machines. Sipho needs to calculate the companys cost of capital. Their present capital structure is as follows: 600 000 ordinary shares originally issued at R1,50 per share but now trading at R2, 20 per share. 150 000 preference shares now trading at R4,10 per share (originally issued at R5 per share). The dividend rate is 10% p.a. fixed. 150 000 debentures issued at R15 interest at 13 % p.a. (payable in 5 years time.) 5 Additional data a. The companys beta is 1.3. The company requires a return on market of 11% and a risk free rate of 7 %. b. The current tax rate is 28%. c. MasterCrafts current dividend is 35c per share and they expect their dividends to grow at 5% p.a.

Required 4.2.1 Assuming that the company uses the CAPM to calculate their cost of equity, calculate the weighted average cost of capital (WACC).