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You have been provided with some key information about Taste Holdings below. Table A: Key Statistics Taste Holdings Beta 1.25 Debt: Equity 27%:73 Risk free
You have been provided with some key information about Taste Holdings below. Table A: Key Statistics Taste Holdings Beta 1.25 Debt: Equity 27%:73 Risk free rate 7.42% Market risk premium 6% Pre-tax cost of debt 10% Tax rate 30% Table B: Project Z New Jewellery line Net operating cash inflows per annum year 1 to 5 R1 000 000 p.a. Depreciation R500 000 p.a. Initial capital expenditure R5 000 000 Recoverable capital expenditure R200 000 Decrease in operating cash inflows from current lines per annum if Project Z goes ahead R500 000 p.a. Design costs to date R150 000 Allocated head office overheads R50 000 p.a. Required: Calculate the Weighted Average Cost of Capital of Taste Holdings (14 marks)
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