QUESTION $10$: QUEEN POWER $(45$ marks; $1$ hours$)$Queen Power Ltd is a medium size manufacturing business that is highly dependent on electricity for production. Due to the recent load shedding, the production and profit of the company is under massive strain. The directors have decided to invest in a solar power system as an alternative energy source, to minimise the impact of load shedding on the business as there is no other short to medium$-$term solution to the national electricity crisis. The project cost is estimated at R$25000000$ and will commence as soon as the funding of the project is confirmed.The following is an extract from the statement of financial position at $31$ March $2016$:NotesRandNotes$1.$ TStEquity and LiabilitiesTotal equityOrdinary share capitalRetained income$10\%$ Preference share capital$123[65000000]($tel:$65000000)[40000000]($tel:$40000000)[10000000]($tel:$10000000)[15000000]($tel:$15000000)5$Non$-$current liabilities$12\%$ DebenturesDeferred tax$4$Current liabilitiesTrade payablesBank overdraftProvisions$5$Total equity and liabilities$[16500000]($tel:$16500000)[16000000]($tel:$16000000)50000025500009500001000000600000[84050000]($tel:$84050000)$Notes$1.$ The historical average issue price of ordinary shares is $160$ cents. The latest known share price is $225$ cents $($cum dividend of $25$ cents$).$ In line with its stable annual growth, the company is expecting to declare a dividend of $26$ cents for the year ended $31$ March $2017.$The company's post$-$tax net profit margin for the year was $20\%,$ while the operating profit margin was $38\%.$ Despite the slow economic growth and electricity supply disruptions, the company managed to increase its sales by $11\%$ to R$30000000.$ Retained earnings are not available for future projects.The market value of these irredeemable preference shares is R$20000000.$ Preference shareholders have indicated their willingness to convert their shares into ordinary shares should a need arise.The $10-$year debentures with a redemption discount of R$757574$ were issued on $5$ April$2010.$ The yield on similar debentures in the market approximates $8\%.$ Interest is paid annually in arrears.The bank overdraft bears an average interest rate of $8\%$ per annum. The overdraft is used to bridge the working capital requirements when the need arises, and the balance fluctuates monthly.Additional information:The current effective tax rate is $28\%.$ All percentages given are before tax, unless Where otherwise stated.The company has a target capital structure of $80\%$ equity and $20\%$ debt. Under the target capital structure, ordinary share capital is to be maintained at $75\%$ of total equity.REQUIREDa$)$ Calculate the weighted average cost of capital of Queen Power Ltd based on both the current$-$ and target capital structure, for the purpose of evaluating the proposed project and comment on the differences between these calculations.$[$Round rand amounts to the nearest rand and other numbers to the nearest two decimal places$]($Calculations $22$ marks; comments $3$ marks$)$