Calculate as at December 2007, a market related cost if capital for the evalution of its long term capital projects.

SDC Group Ltd. is a public company listed on the JSE. The financial director is about to evaluate a number of long-term capital projects and enlists your aid as a consultant to help him estimate SDC's cost of capital. You have access to the recently published financial statements, which reveal the following consolidated balance sheet dated 31 December 2007: Rm Rm 6 Non-current assets 57 74 80 Current assets 163 10 90 Ordinary share capital Retained profits Ordinary shareholders' interest Outside shareholders' interest Total shareholders' interest Long-term debt (2) Deferred tax Bank overdraft) Other current liabilities Total liabilities & equity 60 10 5 55 220 Total assets 220 Notes: 1. 2 There are 24 million ordinary shares of 25 cents each in issue. The rate of interest on the long-term debt, which is repayable at the end of TOUT gingen dem Type here to search o HD RI hop $ % 2 & 7 3 4 5 6 8 W E R T Notes: 1. 2. There are 24 million ordinary shares of 25 cents each in issue. The rate of interest on the long-term debt, which is repayable at the end of 2017 is 12% per annum while the current rate for long-term lending of this risk class is 15% per annum. Interest is payable annually in arrears on 31 December The rate of interest on bank overdraft is 20% per annum. The subsidiaries of the company are in similar lines of business and have similar risk and growth prospects. This balance sheet reflects management's target capital structure. The corporate tax rate is 29 percent. 3. 4. 5. 6. You approach a friend in a local merchant bank who tells you that although the historical equity risk premium over long bonds on the JSE has been about 8 per cent per annum, it is thought that this premium will be 6 per cent per annum going forward. The current long-term government bond yield is 10% per annum. SDC Ltd's historic beta has been calculated at 1,5. The market price of an SDC Ltd share on 31 December 2007 was 500 cents