The CEO of Capricon Plaza Holdings Limited recently said on a press briefing that, 'the company is targeting growth in the rest of Africa over the next five years to diversify revenue streams across a wider

range of geographies'. The first project in Africa that Capricon Plaza Holdings has identified is located in Gwantanamo Bay. The project has an estimated return of $18\%$ per year.

The company has indicated that it will raise financing for the project in South Africa. There is more risk associated with the project because the Gwantanamo trading environment is different to the South

African trading environment. Therefore, management has to determine the specific weighted average cost of capital that applies to a project of this nature. Information that may assist management with

its calculations is set out below.

Additional Information

Capricon Plaza Holdings' financial year$-$end results have recently been released. The company's reported results include $2\mathrm{.}1$ million issued ordinary shares and earnings after tax of R$5\mathrm{.}64$ million.

The company's current price$-$earnings is $13.$

Capricon Plaza recently declared and paid a dividend of R$2\mathrm{.}10$ per ordinary share.

Over the past few years, the company has maintained a growth rate of $15\%$ per annum in earnings and dividends. This growth rate is sustainable for the foreseeable future.

$.$ The company has a long$-$term loan with a book value of $R10$ million and a coupon rate of $10\%$ before tax. The loan will be repaid in full in three years' time at a premium of $5\%.$ Similar long$-$term loans

are currently traded in the market at $12\%$ per annum before tax.

$.$ Capricon Plazaha issued $180000,12\%$ redeemable debentures with a par value of R$100$ per debenture. These debentures are currently trading at R$102$ per debenture. The debentures will be redeemed

at a premium of $2\%$ in five years' time.

Capricon Plaza has $200000$ non$-$cumulative, non$-$redeemable preference shares in issue at a nominal value of R$80$ per share. If market$-$related dividends were paid, dividends would be R$1800000.$

According to the terms of the share, the company may declare R$2000000$ non$-$cumulative preference dividends in any one year.

$.$ The company tax rate is $28\%$ per year

Requirements

Advise the management of Capricon Plaza Holdings Limited whether it should invest in the Gwantanamo Bay project. Motivate your answer $($use market values to calculate the WACC$).(26$ Marks$)$