Snakwheel is a quoted company that facilitates home deliveries on behalf of fast-food companies across its home country. Consumers can order food by app or through Snakwheel’s website.

Snakwheel was launched as Westaria’s first major home delivery platform in 2007. The founders were keen to exploit the complementary growth in both online shopping and consumer demand for fast food. Both of those trends were particularly associated with the same demographic, namely younger consumers, and so a website that offered immediate delivery of fast food was likely to succeed.

The company was quoted on the Westarian Stock Exchange in 2016. Snakwheel remains Westaria’s largest fast food delivery platform.

Currently, Snakwheel has the following capital structure:
Preference shares
Snakwheel has 25,000 preference shares in issue. The preference shares are non-redeemable and currently trade at R450 per share. The shares pay a fixed annual dividend of R40 per share and have a par value of R100 per share.
Ordinary shares
Snakwheel has 50,000 ordinary shares and no dividends will be paid on the shares over the next four years because the company needs to reinvest its earnings to enter the grocery delivery market. Snakwheel will then pay a R25 dividend per share in 5 years and will increase this dividend by 12.8% per annum thereafter.
Currently, the ordinary share market has a 6% risk free rate of return, a beta of 2.1 and a market risk premium of 8%.
Bonds
Snakwheel has 6,500, 8% coupon bonds on the market with 5 years to maturity. The current selling price of these bonds is 95% of the par value: R1,000 per share. The bonds make quarterly payments.
Assume that the company tax rate is 27%.
REQUIREMENTS:
Calculate Snakwheel’s cost of equity (Re).