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Neo Resources is seeking to invest R 1 0 million in a new mining project to expand its gold production capacity. the management of the

Neo Resources is seeking to invest R10 million in a new mining project to expand its gold production capacity. the management of the company prefers to maintain the present 35% debt, 55% equity and 10% preference shares capital structure. debt financing can be obtained by issuing a 5- year R1000 bond. the current price of bond is R1123 and pays 10% coupons. Neo Resources has a beta of 1.3. the expected return on the market portfolio is 16% and the current risk free rate is 8%. the company is contemplating issuing 10% preference shares, which are expected to sell for a par value of R60 per share. the cost of issuing and selling the share is expected to be 5% the tax rate is 29% Required 1.1 calculate Neo resources's components costs 1.2 calculate the company's weighted average cost of capital.

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