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QUESTION 4 (25 marks; 30 minutes) SAND Ld (SAND) is a public company that is listed on the Johannesburg Stock Exchange SAND IS one of South Africa's largest residencial construction companies that focuses on apartment buildings and townhouses Substantial capital investment is required between purchasing the land for development and receiving payment for the house. SAND therefore requires a great amount of borrowings and equity finance to support its operations From 2008, property prices have risen steadily, and the construction industry has performed well. This enabled SAND to reduce is dependence on debt finance Recently management consultants appointed by SAND recommended that the company should decrease its gearing. Their opinion is that it would decrease the weighted average cost of capital (WACC) and therefore increase the company's value Atier in-depth research of the industry and SAND's historic performance, the consultants estimated that the optimum gearing level obt/debe plus equity for SAND is around 50% Ordinary share capital R10 000 000 Long-term debt finance R50 000 000 Non-distributable reserves R2 600 000 Retained income R7 200 000 Equity finance consists of 10 milion shares in issue. The shares are currently trading on the JSE at R15.53 per share Dividend paid to shareholders for the year was R3,00 per share, and this is expected to grow at 7.5%. pero Debt finance consists of: R40 million worth of R120 debentures currently trading R125 and a yield of 12%. The debentures are redeemable ater eight years at face value. The current market reum for similar debentures with a life of eight years 10% before tau Long-term loans which currently incur interest of 10% per annum The current corporate tax rate in South Atrica is 28%. REQUIRED a) Calculate the current capital structure of SAND Ld 129 b) Calculate the market value of equity (1) C Calculate the cost of equity by using the dividend growth model (3) Calculate the star-tax cost of cobertures 12 [TURN OVERI MAC2602 OCTINOV 2020 .) Calculate the current market value of dubentures. You may use either themathematical formula or the financial calculator Show the formula sed mathematical formula) as well as detailed calculations or all the Financial calculator inputs Round your final answer to the nearest rand.) 16) Calculate the weighted average cost of capital (WACC) of SAND Lad You can use either the mathematical formula or the table format Show all workings and firal answer to two decimal places 9) Calculate what the weighted average cost of capital (WACC) of SAND Lid will be if the advice of the management consultants [Assume that cost of equity and cost of debt will remain the same.) (3) QUESTION 4 (25 marks: 30 minutes) SAND LISAND) is a public company that is listed on the Johannesburg Stock Exchange SAND one of South Africa's largest residential construction companies that focuses on apartment buildings and townhouses Substantial capital investment is required between purchasing the land for development and receiving payment for the houses SAND therefore requires a great amount of borrowings and equity finance to support is operion . From 2008, property prices have lisen steadily, and the construction industry has performed well. This enabled SAND to reduce its dependence on debt finance. Recently, management consultants appointed by SAND recommended that the company should decrease its gearing their opinion is that would decrease the weighted average cost of capital (WACC) and therefore increase the company's value. Alter in-depth research of the industry and SAND's historie performance, the consultants estimated that the optimum gearing level (debt/debit plus equity for SAND is around 50% Ordinary share capital Long-term det finance Non-distributable reserves Retained income R10 000 000 R50 000 000 R2 000 000 R7 200 000 . . Other Information Equity finance consists of 10 million shares in issue. The share are currendy trading on the JSE R15,63 per share Dividend paid to shareholders for the year was R3,00 per share and this is expected to grow m 7.5% per year Debt finance consists of R40 million worth of R120 debentures currently trading at R125 and a yield of 12%. The debentures are redeemable after eight years at face value. (The current market return for similar debentures with a life of eight years is 10% before tax). Long-term loans which currently incur interest of 10% per annum. The current corporate tax rate in South Africa is 28%. REQUIRED a) Calculate the current capital structure of SAND Lid. (2) b) Calculate the market value of equity. 4) Calculate the cost of equily by using the dividend growth model (3) di Calculate the after-tax cost of debentures (1) 12) TURN OVER MAC 2002 OCT NOV 2000 el Calculate the current market value of debentures. You may use either themathematical formula of the financial calculator. Show the formula od mathematical formula as well as detailed calculation or altra financial calculator inputs. Round your finalaswer to the nearestrand 1) Calculate the weighted average cost of capital (WACC) of SAND Lid. You can use either the mathematical formula or the table format. Show all working and round you final answer to two decimal places al Calculate what the weighted average cost of capital (WACC) of SAND Lid will be it the advice of the management consultants Assume that cost of equity and cost of debt will remain the same 18 125 QUESTION 4 (25 marks; 30 minutes) SAND Ld (SAND) is a public company that is listed on the Johannesburg Stock Exchange SAND IS one of South Africa's largest residencial construction companies that focuses on apartment buildings and townhouses Substantial capital investment is required between purchasing the land for development and receiving payment for the house. SAND therefore requires a great amount of borrowings and equity finance to support its operations From 2008, property prices have risen steadily, and the construction industry has performed well. This enabled SAND to reduce is dependence on debt finance Recently management consultants appointed by SAND recommended that the company should decrease its gearing. Their opinion is that it would decrease the weighted average cost of capital (WACC) and therefore increase the company's value Atier in-depth research of the industry and SAND's historic performance, the consultants estimated that the optimum gearing level obt/debe plus equity for SAND is around 50% Ordinary share capital R10 000 000 Long-term debt finance R50 000 000 Non-distributable reserves R2 600 000 Retained income R7 200 000 Equity finance consists of 10 milion shares in issue. The shares are currently trading on the JSE at R15.53 per share Dividend paid to shareholders for the year was R3,00 per share, and this is expected to grow at 7.5%. pero Debt finance consists of: R40 million worth of R120 debentures currently trading R125 and a yield of 12%. The debentures are redeemable ater eight years at face value. The current market reum for similar debentures with a life of eight years 10% before tau Long-term loans which currently incur interest of 10% per annum The current corporate tax rate in South Atrica is 28%. REQUIRED a) Calculate the current capital structure of SAND Ld 129 b) Calculate the market value of equity (1) C Calculate the cost of equity by using the dividend growth model (3) Calculate the star-tax cost of cobertures 12 [TURN OVERI MAC2602 OCTINOV 2020 .) Calculate the current market value of dubentures. You may use either themathematical formula or the financial calculator Show the formula sed mathematical formula) as well as detailed calculations or all the Financial calculator inputs Round your final answer to the nearest rand.) 16) Calculate the weighted average cost of capital (WACC) of SAND Lad You can use either the mathematical formula or the table format Show all workings and firal answer to two decimal places 9) Calculate what the weighted average cost of capital (WACC) of SAND Lid will be if the advice of the management consultants [Assume that cost of equity and cost of debt will remain the same.) (3) QUESTION 4 (25 marks: 30 minutes) SAND LISAND) is a public company that is listed on the Johannesburg Stock Exchange SAND one of South Africa's largest residential construction companies that focuses on apartment buildings and townhouses Substantial capital investment is required between purchasing the land for development and receiving payment for the houses SAND therefore requires a great amount of borrowings and equity finance to support is operion . From 2008, property prices have lisen steadily, and the construction industry has performed well. This enabled SAND to reduce its dependence on debt finance. Recently, management consultants appointed by SAND recommended that the company should decrease its gearing their opinion is that would decrease the weighted average cost of capital (WACC) and therefore increase the company's value. Alter in-depth research of the industry and SAND's historie performance, the consultants estimated that the optimum gearing level (debt/debit plus equity for SAND is around 50% Ordinary share capital Long-term det finance Non-distributable reserves Retained income R10 000 000 R50 000 000 R2 000 000 R7 200 000 . . Other Information Equity finance consists of 10 million shares in issue. The share are currendy trading on the JSE R15,63 per share Dividend paid to shareholders for the year was R3,00 per share and this is expected to grow m 7.5% per year Debt finance consists of R40 million worth of R120 debentures currently trading at R125 and a yield of 12%. The debentures are redeemable after eight years at face value. (The current market return for similar debentures with a life of eight years is 10% before tax). Long-term loans which currently incur interest of 10% per annum. The current corporate tax rate in South Africa is 28%. REQUIRED a) Calculate the current capital structure of SAND Lid. (2) b) Calculate the market value of equity. 4) Calculate the cost of equily by using the dividend growth model (3) di Calculate the after-tax cost of debentures (1) 12) TURN OVER MAC 2002 OCT NOV 2000 el Calculate the current market value of debentures. You may use either themathematical formula of the financial calculator. Show the formula od mathematical formula as well as detailed calculation or altra financial calculator inputs. Round your finalaswer to the nearestrand 1) Calculate the weighted average cost of capital (WACC) of SAND Lid. You can use either the mathematical formula or the table format. Show all working and round you final answer to two decimal places al Calculate what the weighted average cost of capital (WACC) of SAND Lid will be it the advice of the management consultants Assume that cost of equity and cost of debt will remain the same 18 125