New Gen Electric Limited (New Gen) is a small electrical manufacturing group listed on the Johannesburg Stock Exchange (JSE), whose shares currently trade at 600 cents per share. In their integrated financial report for the year ended 31 August 2020, the following information was made available: The summarised statement of financial position as at 31 August 2020: - Equity consists of 100 million ordinary shares with a par value of R0,50 each, issued at R1,50 per share, plus accumulated reserves. - The non-current liabilities consist of irredeemable preference shares (200 000 preference shares with a nominal value of R1 000 each) and long-term debt. The issued preference shares currently pay a fixed dividend of 10,825% per annum. A market-related yield for similar preference shares is 10,25% per annum. The average cost of the remainder of the long-term debt is 8% per annum. The market value of debt is assumed to equate its book value. - New Gen is investigating a new investment project of R100 million (see "Note 1") - The targeted debt: equity ratio of New Gen is 65:35. - The current return on equity of 20% is below the targeted return of 23%. - The targeted cost of debt is 7% before tax. - The management committee proposes that a hurdle rate of 3% be added to the company's weighted average cost of capital for all future project evaluation decisions. - New Gen has an effective tax rate of 28% per annum. \begin{tabular}{|c|c|c|} \hline & REQUIRED & MARKS \\ \hline A & CalculateboththetargetandactualcurrentweightedaveragecostofcapitalforNewGenElectricLimited.Roundtotwodecimalswhereverapplicable. & 20 \\ \hline B & BrieflyexplainthefollowingconceptstotheBoardofDirectorsofNewGenElectricLimited:I.AtargetWACCII.ActualWACCIII.HurdlerateWACC & 3 \\ \hline C & DetermineifNewGenElectricLimitedshouldproceedwiththenewinvestmentprojectornot,assumingaWACCrateof15%.RoundtoR000whereverapplicable. & 27 \\ \hline & Note:Roundallpercentagesto2decimalsandallrandvaluestothenearestwhole. & \\ \hline \end{tabular}