Hi,

Please can you assist me with the following problem:

A company currently has R100 million in assets, R50 million in debt and a beta of 1,00.

The risk free rate is 8% and the market risk premium 6%.

The company has 10 million shares outstanding that are currently trading at R5 apiece. It is

expected that its dividends will grow at a rate of 5% per annum for the foreseeable future. Up

to 5 million unissued shares can be issued at the current market price. Current interest

payments amount to R5 million per annum and the company can obtain a new loan for the

full, required amount at an annual cost of 17%, which is close to the yield on bonds of similar

companies.

The company wishes to raise exactly R20 million only. The two respective financing options

are considered mutually exclusive and the company is taxed at a rate of 28%.

Determine the weighed average cost of capital under the two respective, possible scenarios

(using debt financing or equity).