Vertex is a logistics company. The company recognised that its truck fleet is old and they are willing

to replace it$.$ Before replacing the old fleet, they would are interested in knowing their current cost of

capital to have a view of where they are.

At the moment the capital structure consists of the following:

Ordinary shares $1200000$ R$1$ ordinary shares at market price

R$3\mathrm{.}50$ per share

Preference shares $400000$ shares trading at R$5$ per share $($issued

at R$6$ per share$).8\mathrm{.}5\%$ fix interest rate

Bank loan R$1000000$ at $10\%$ payable in $5$ years

Additional information

$-$ The current tax rate is $27\%$

$-$ The current dividend is at $35$c per share and the dividend is expected to grow by $6\mathrm{.}5\%$ per

annum

$-$ The company Beta is $1\mathrm{.}2.$ Based on market information the return on the market is $15\%$ and risk free rate is $7\%.$

Required:

Calculate its weighted average cost of capital using both methods of cost of capital.