Suppose you have been hired as a financial consultant to BOOM Electronics Ltd, a large public company. The company is looking at building a manufacturing plant to produce a new line of electronic products. The company estimates that it will cost R6.5 million to build the plant.

Consider the following current market data on BOOMs securities:

Debt: 10 000 bonds, 8% coupon bonds, 20 years to maturity, selling at a discount of R750. The bonds have a R1 000 par value each and make semi-annual payments.

Ordinary shares: 300 000 ordinary shares in issue, selling for R50 per share; the shares beta coefficient is 1.1.

Preference shares: 31 250 preference shares, 7% preference shares in issue selling for R80 per share. The preference shares have a par value of R100.

Market: 6% expected market risk premium; 5% risk free rate.

BOOMs tax rate is 28%.

1 Calculate the after-tax cost of debt.

2 Calculate the cost of ordinary shares.

3 Calculate the cost of preference shares.

4 Calculate the weighted average cost of capital (WACC).