Q1.

(iii) Bellville Wallop (BW) Ltd operates in 2 lines of business: Electrical with an estimated value of R10 billion and Furniture with an estimated value of

R15 million. The following information is provided on average industry levered betas and debt to equity (D/E) ratios:

Line of Business	Average Industry levered Beta	Average Industry D/E ratio
Electrical	0,92	25%
Furniture	1,17	50%

Currently the firm has a D/E ratio of 1. Tax rate for the firm is 40%. Assume the current risk free rate is 6% and the market risk premium is 5.5%.

Estimate the cost of equity for BW, using the bottom up approach to estimate company's beta.

Q 2

Bellville Glassware (BG) finances its operations with debt and common share, where debt constitute 40% of the capital structure.
Analyst believe that the company will grow at an annual constant rate of 10% per annum. The annual yield on the company debt is
rd = 10% and the companys tax rate is T = 30%. The BGs common stock trades at P0 = R55 per share, and its current dividend of
D0 = R5 per share is expected to grow at a constant rate of g = 10% a year
Estimate BGs weighted average cost of capital				11