Question

QUESTION TWO [25] You are the director of Gatri Ltd and you are tasked with calculating the cost of capital of the company on the following proposed capital structure: • 2.5 million ordinary shares with a market price of R4 per share. The latest dividend declared was R1.20 per share. A dividend growth of 10% was maintained for the past 5 years. • 1.8 million 8% R1 preference shares with a market value of R3 per share. • R1,500,000 7% debentures due in 8 years and the current yield-to-maturity is 9%. • R900,000 12% bank loan. Additional information: 1. The company has a tax rate of 25%. 2. The beta of the company is 1.5, a risk-free rate of 4% and the return on the market is 12%. Required: 2.1 Calculate the weighted average cost of capital (WACC). Use the Gordon Growth Model to calculate the cost of equity. (21) 2.2 Calculate the cost of equity using the capital asset pricing model (CAPM) calculate the adjusted WACC based on CAPM. (4)

          QUESTION TWO
[25]
You are the director of Gatri Ltd and you are tasked with calculating the cost of capital of
the company on the following proposed capital structure:
• 2.5 million ordinary shares with a market price of R4 per share. The latest dividend
declared was R1.20 per share. A dividend growth of 10% was maintained for the
past 5 years.
• 1.8 million 8% R1 preference shares with a market value of R3 per share.
• R1,500,000 7% debentures due in 8 years and the current yield-to-maturity is 9%.
• R900,000 12% bank loan.
Additional information:
1. The company has a tax rate of 25%.
2. The beta of the company is 1.5, a risk-free rate of 4% and the return on the market
is 12%.
Required:
2.1 Calculate the weighted average cost of capital (WACC). Use the Gordon Growth
Model to calculate the cost of equity.
(21)
2.2 Calculate the cost of equity using the capital asset pricing model (CAPM) calculate
the adjusted WACC based on CAPM.
(4)

QUESTION TWO
[25]
You are the director of Gatri Ltd and you are tasked with calculating the cost of capital of
the company on the following proposed capital structure:
• 2.5 million ordinary shares with a market price of R4 per share. The latest dividend
declared was R1.20 per share. A dividend growth of 10% was maintained for the
past 5 years.
• 1.8 million 8% R1 preference shares with a market value of R3 per share.
• R1,500,000 7% debentures due in 8 years and the current yield-to-maturity is 9%.
• R900,000 12% bank loan.
Additional information:
1. The company has a tax rate of 25%.
2. The beta of the company is 1.5, a risk-free rate of 4% and the return on the market
is 12%.
Required:
2.1 Calculate the weighted average cost of capital (WACC). Use the Gordon Growth
Model to calculate the cost of equity.
(21)
2.2 Calculate the cost of equity using the capital asset pricing model (CAPM) calculate
the adjusted WACC based on CAPM.
(4)

Added by Tyler T.

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