Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

++++ KRT Ltd feels that some of their machines need to be replaced. They seek your help in order to calculate their cost of capital.

++++

image text in transcribed

KRT Ltd feels that some of their machines need to be replaced. They seek your help in order to calculate their cost of capital. Their present capital structure is as follows: - 600000R2 ordinary shares trading at R2,40 per share. - 200000 preference shares trading at R2,50 per share (issued at R3 per share). 10% per annum interest. - A bank loan of R1 000000 at 12% per annum interest. Additional data a. The company's beta is 1,4 . Market return is 15% and the risk free rate is 6%. b. Company tax rate is 28%. c. Current dividend is 50c per share and they expect their dividends to grow by 7% per annum. Required: 3.1 Assuming that the company uses the Capital Asset Pricing Model to calculate their cost of equit calculate their weighted average cost of capital. 3.2 A further R750000 is required to finance the expansion. Which option should they use (from ordinary shares, preference shares or loan financing) and why

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To The Financial Management Of Healthcare Organizations

Authors: Michael Nowicki

6th Edition

1567936695, 9781567936698

More Books

Students also viewed these Finance questions

Question

Aware of the role of HRM in multinational corporations.

Answered: 1 week ago