Question 1 (15 marks) JKL (Pty) Ltd is a privately held online retail company that operates in South Africa. The company

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Question 1 15 Marks Jkl Pty Ltd Is A Privately Held Online Retail Company That Operates In South Africa The Company 1 (44.47 KiB) Viewed 34 times

Question 1 (15 marks) JKL (Pty) Ltd is a privately held online retail company that operates in South Africa. The company is expanding fast and is exploring the possibility of entering into the furniture retailing space. The details of the company's capital structure and cost of capital are as follows: Debt-to-equity ratio of 1:3 Bank loans consist of 40% of all debt, while bonds consist of the balance. The pre-tax rate of interest is at 8% per annum, while bonds have a yield to maturity of 9% Details of the company's ordinary shares are as follows: 10 million ordinary shares issued at R2 per share but currently trading at R50 a share. Other details with regard to the calculation of cost of capital for JKL (Pty) Ltd are as follows: The company recently paid a dividend of R2.50 per share. The company's growth rate of dividends is at 10% per annum. The tax rate is at 28%. Required: 1.1 1.2 Calculate JKL (Pty) Ltd's Weighted Average cost of Capital (WACC). (10) Briefly explain, with reasons, how JKL (Pty) Ltd can reduce its WACC. (5)