Snug and Comfort Ltd $($S&C$)$ is a manufacturer of various household appliances and

furniture items.

S&C is planning on launching a new furniture range which will be financed from the

entity$$s general pool of funds. Consequently, S&C needs to determine the entity$$s

weighted average cost of capital to evaluate whether the new furniture range will

contribute to shareholders$$ wealth or lead to depletion.

The following information on S&C has been gathered:

$$ The new furniture range will require an investment of funds to the value of R$6$

$850000.$

$$ R$25000000$ worth of finances have been raised from S&C$$s ordinary shares.

$11\mathrm{.}75\%$ cumulative, redeemable preference shares are in issue which carries

a required rate of return of $11\mathrm{.}52\%.$ These preference shares contribute

R$10000000$ of funds to the entity.

$11\mathrm{.}90\%$ non$-$cumulative, non$-$redeemable preference shares with a cost of

finances of $12\mathrm{.}2\%$ contribute R$3340000$ funding to S&C$.$

$$ S&C has a beta of $1\mathrm{.}29$ while the return S&C$$s industry indicates a return

offered of $11\mathrm{.}88\%.$

$$ South African long$-$term government bonds reward a return of $10\mathrm{.}5\%.$

$$ All rates provided above are pre$-$tax consequences and the South African

Income Tax rate for companies is $27\%.$

REQUIRED:

Assist Snug and Comfort Ltd in determining the entity$$s weighted average cost of

capital.

Round to two decimals where required