The CEO of Inperial Holdings Limited recently said the company is targeting growth in the rest of Africa over the next five years in an effort to diversify revenue streams across a wider range of geographies. The first project in Africa that Inperial Holdings has identified is located in Namibia. 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 Namibian 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: Inperial Holdings financial year-end results have recently been released. The companys reported results include 2.1 million issued ordinary shares and earnings after tax of R5.64 million. Inperials current price-earnings is 13. Inperial recently declared and paid a dividend of R2.10 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. Inperial has issued 180 000 12% redeemable debentures with a par value of R100 per debenture. These debentures are currently trading at R102 per debenture. The debentures will be redeemed at a premium of 2% in five years time. Inperial has 200 000 non-cumulative, non-redeemable preference shares in issue at a nominal value of R80 per share. If market-related dividends were paid, dividends would be R1 800 000. According to the terms of the share, the company may declare R2 000 000 non-cumulative preference dividends in any one year. The company tax rate is 28% per year.

Requirements:

5.1 Advise the management of Inperial Holdings Limited whether it should invest in the Namibian project. Motivate your answer (use market values to calculate the WACC). (27 marks)

5.2 List other factors that the management of Inperial Holdings Limited should consider before investing in the Namibian project. (5 marks)