The Board now wants to consider another funding option $$ Option $4$: $60\%$ funded by R$10$s existing bank by increasing

the medium$-$term loan, and $40\%$ funded by a private investor, Sam O$$Leary$.$

Assumptions in relation to this funding option are included in Appendix $4.$ Under this option, Sam would become a

shareholder.

Required Appendix $4$: Funding assumptions

Funding provided on the following assumption changes

$1.$ Interest expense on the medium$-$term loans is currently based on $6\%$ per annum. Interest rate to increase by $25\%$ to

$7\mathrm{.}5\%$ per annum for the life of the medium$-$term loans $($all revised interest calculations are to be based on a full

year$).$

$2.$ Ignore any overdraft finance costs.

$3.$ Existing covenants with the bank are achieved.

$4.$ EBIT increases by $2\%$ per annum.

$5.$ Using Appendix $3$ and Appendix $4,$ analyse the impact of the funding assumptions outlined in Appendix $4$ and

recommend whether R$10$ should proceed with Option $4.$