Office Angels want to expand their office leasing business, which they calculate will cost them 6 million. They are trying to decide whether to issue more shares in their company or to ask the bank for an additional loan. Before doing so, they would like you, as their financial consultant to first advise them on the Weighted Cost of Capital as well as the weighted cost of each component. Then they want you to advise them on the advantages and disadvantages of both issuing more shares in their business and taking on more debt.

At the moment, Office Angels have two long-term loans with the bank; one for 6 million and a second long-term loan for 2 million. Both bear interest at 5%. They have also issued 1 million shares in their company to investors, with a par value of 1. The shares are presently trading on the stock exchanged at 3 per share. The tax rate is 30%.

a) Calculate the weighted average cost of capital, including the weighted cost of each component. Do not round until the last figure and then round to 2 decimal places.

(8 marks)

b) Advise Office Angels on the advantages and disadvantages of issuing more shares in their business in order to raise the additional capital needed for expansion.

(6 marks)

c) Advise Office Angels on the advantages and disadvantages of acquiring more debt in their business in order to raise the additional capital needed for expansion.