5.2 REQUIRED Use the information provided below to calculate the cost (as a percentage expressed to two decimal places) of ordinary share financing, preference share financing and the loan. (6 marks)

INFORMATION

Gypsey Limited intends investing in a project and is considering using the following three sources of finance:

Ordinary shares The market price of an ordinary share of Gypsey Limited is R200 and the total ordinary share capital is R2 000 000. The shares were initially sold for R160 each. The dividend per share at the end of the previous year was R30. The expected growth rate in dividends is 10%. The dividend growth model is used to estimate the cost of the ordinary shares. Preference shares Gypsey Limited intends issuing 8 000 15% preference shares at R210 per share. The cost of issuing the shares is estimated at R10 each. Long-term loan Gypsey Limited intends obtaining a long-term loan. The loan of R1 160 000 is expected to be obtained at an interest rate of 12%. The marginal tax rate of Gypsey Limited is 28%