Tugela Enterprises currently has 10 million ordinary shares in issue, which are selling for R8 each. The firm's recent financial statements reported earnings per share (EPS) of R1.40, and a return on equity (ROE) of 17.50%. The firm currently pays out 57% of earnings as dividends. Tugela has two debt issues:

1^st Issue: Seventy-five thousand (75 000), 8% semi-annual coupon bonds, with a yield to maturity of 9.32% and 10 years to maturity.

2^nd Issue: Sixty thousand (60 000), 6% semi-annual coupon bonds, with a yield to maturity of 6.7% and 6 years to maturity.

The tax rate is 30%.

Required:

1.2 Prepare a report for the Board of Directors of Tugela Enterprises discussing issues that might influence a companys capital structure strategy.