Use the information below to answer questions 3, 4, 5 and 6 A company considers investing in a capital project with a useful life of ten years, requiring a capital outlay of R10 million and an internal rate of return of 11%. The management regards the current capital structure of 40% debt, 40% equity and 20% preference shares as optimal. The tax rate is 30%. The following information regarding the financing of the new project is given: • The company can raise debt financing by selling corporate bonds at a coupon rate of 8% per annum. Interest paid annually. The debentures has a par value of R1 000 and can be issued at a premium of 5%. The bonds will be redeemed at par value in year 5. The ordinary shares of the company are currently trading at R50 per share. The beta coefficient of the company's shares is 0.8 and the market premium is estimated at 4%. The risk free rate on short term government bonds is 7%. Preference shares can be issued that pay 10% preference dividends at a market price of R90 per share. The cost of debt financing will be? A B C D 4.75% 6.79% 8% 9.3% The cost of equity financing will be? A4% B7% C 9.4% D 10.2% The cost of preference share financing will be? A B C D 6.3% 7% 9% 10% The weighted average cost of capital of the company will be? A B C D 7.03% 7.98% 8.79% 11%

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