Your company has the following capital structure that you consider optimal:

Ordinary shares Non-redeemable preference shares Debt

50% 15% 35%

It is expected that your companys earnings and dividends will grow at a constant rate of 9% in the future. A dividend of R3.60 was paid last year. The current share price is R60. The company has a calculated Beta of 1.51.

The non-redeemable preference shares were issued at their par value of R100 each and a dividend of 11% is paid annually. Non-redeemable preference shares are currently trading at R125.

You have established the following:

• Government bonds yield 11%
• An average share on the JSE has a 14% expected rate of return.
• Current interest rates is 12% per annum.
• Current tax rate is 28%.Calculate the weighted average cost of capital (WACC) for your company.

1. Explain how you will use the WACC as calculated in 2 above.

2. The WACC is affected by a variety of factors. Some are beyond the companys control, but others are influenced by company policies. List the factors that the company (i) can control, and (ii) cannot control.