1. Old Mutual is a leading independentfinancial services group in Namibia, with an extensive national footprint and both a Namibian and Mauritian presence. In operation since 1998, they offer a value-orientated approachto their clients' financial needs, from asset and wealth managementto insurance. Old Mutual hasclose to 200 offices throughout South Africa, two offices in Namibia and one in Mauritius. Their business consists of three operating divisions: Old Mutual Wealth, Old Mutual Asset Management and Old Mutual Insurance. Each applies its own dedicated focus to their clients' financial wellbeing. Old Mutual's investments include a 58.3% shareholding in private school group Amazing Kids Holdings, a 28.3% stake in banking group Capitec, a 64.7% stakein financial services firm Old Mutual Consult, a 42.4% stake in Agribusiness NamAgri and a 100% holding in Old Mutual Private Equity. Amazing Kids Holdings Amazing Kids is a listed entity that has been a provider of school education to children since 1998 and believes that education of the youth is a cornerstone for the developmentof quality leaders, and goodcitizens, that will positively impact society. From humble beginnings, Amazing Kids todayis the largest for profit independent school group in Africa and provides education services to approximately 42 000 learners in 110 schools across South Africa (and most recently Namibia). They have 4 350 employees, of which 2 637 are educators, dedicated to developing the leaders of tomorrow. Amazing Kids' vision is to provide tuition on 80 campuses(or 200 schools) that can accommodate approximately 90 000 learners by 2020. They call this their 80@20 vision. Amazing Kids has embarked on an aggressive growth strategy of acquiring as many schools as possible and attaching their values to those schools to makeit a "Amazing Kids" private school in order to reach their 2020 vision. Amazing Kids is intending to raise N$2 billion in 2018 in order to commence with phase one of this expansion strategy. Extracts from the annual financial statements and the associated notes are below: 2017 2046 __N$'000 N$'000 Assets | _ Non-Current Assets Total Non-Current Assets | 3929 3045 Current Assets Cashandcashequivalentt rials and Sther WSSSRSBISE =| Ee2882 | 166 157 = wo |e | 389291 Total Assets i _ 4318 3.337 EquityaandLiabilities Notes 'Sharecapital . 12877. 2067, 'Reserves __ _ i 38 8. 'Retainedincome = | 3031. 2141 __ 3031 _ 2141 'Liabilities - 9.5% Non-Current Corporate Liabilities Bonds 2 | 968 849 (PreferenceShaeTapoe | 7 a 1066 947 rurrent Liabilities cod. 633. isi HB IBanK Overdraft 5 28 26 i i i L i : L 183 _ 299 i i 220 248 'Total Liabilities _ ee 1287 1196 'Total Equity andLiabilities _ | _| 4318 | 3337 NOTES: 1. Amazing Kids issued shares in 1998 at inception. On implementing their initial growth strategy, Amazing Kids recently had a rights issue and issued additional shares. The average issue price of total shares is N$11.20. The current share price of Amazing Kids as quoted on the Namibian Stock Exchange (NSX) was N$40.00 on 31 May 2018. Amazing Kids has not yet declared a dividend; however, the market is expecting the first dividend from Amazing Kids at the end of the current year (31 December 2018). The expected dividend yield is 5% of the 31 May 2018 shareprice. Amazing Kids' beta co-efficient has been quoted on the Reuters website as 0.35. The average return from the NSX overthe past 10 years has been documented as 14.64%. 2. Corporate bonds were issued on 1 June 2014 and have annual coupon payments. These have a maturity date of 31 May 2022. At the most recent bond auction conducted by National Treasury, the N$208 bondtradedat a yield of 8.87%. It has been calculated that the yield of corporate bonds trades at a premium of 3% over the N$208. The bondswill be redeemedatpar. 3. Preference shares are non-participating, non-cumulative and nonredeemable. The preference shares were issued on 31 May 2016. Preference share dividends are paid annually in arrears. The preference dividend is 13%of the par value of the preference shares. Similar preference sharesaretrading at a yield of 14.25%. 4. Trade and other payables relate to the purchase of school furniture and general expensesrelated to establishing the infrastructure of the schools. 10%of the trade creditor balance comesfrom one supplier who has given Amazing Kids credit terms of 45 days, however the supplier is offering a settlement discount of 5% if Amazing Kids pays within 15 days of the purchase of the goods. Generally, Amazing Kids pays within the credit terms but do not pay suppliers early to take advantage of discounts. The goods were purchased on 1 December 2017. 5. Amazing Kids has obtained an overdraft facility from their bank. This is a revolving facility but is generally settled at least every four months. The annualeffective interest rate for the overdraft is 24%. Additional information e The statement of financial position has been prepared on the historical cost basis. e The expected growth rate has been estimated to be equal to the current CPI of 6%. This is expected to be the constant growth for Capitec for the foreseeable future. Amazing Kids will increase declared dividendsin line with the CPI growthrate. e Assumea corporate tax rate is 28%. REQUIRED Calculate the weighted average cost of capital of Amazing Kids as at 31 May (a) 2017. Explain why you haveincluded or omitted the different sources of finance (30) in the calculation. Explain whether investment and financing decisions should be considered