Question
Answer ALL questions. QUESTION 1 You have been appointed as a financial consultant by the directors of Karachi Holdings. They require you to calculate the
Answer ALL questions. QUESTION 1 You have been appointed as a financial consultant by the directors of Karachi Holdings. They require you to calculate the cost of capital of the company. The following information is available on the capital structure of the company: 1 500 000 Ordinary shares, with a market price of R4 per share. The latest dividend declared was 87 cents per share. A dividend growth of 13% was maintained for the past 5 years. 12%, R1 Preference shares with a market value of R2 per share. 9%, Debentures due in 7 years and the current yield-to-maturity is 10%. 1 000 000 R2 000 000 R1 300 000 13% Bank loan, due in December 2021. Additional information: 1. The company has a tax rate of 30%. 2. The beta of the company is 1.5, a risk free rate of 7% and the retum on the market is 15%. (25 Marks) Required: 1.1 Calculate the weighted average cost of capital (WACC). Use the Gordon Growth Model to calculate the cost of equity. 1.2 Calculate the cost of equity, using the Capital Asset Pricing Model. (22 marks) (3 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started