Question $1$

$(25$ Marks$)$

You have been appointed as a finanoal consulant by the directors of Nhuzuma Holdings. They require you to caloulate the cost of capital of the company a$8$ they are embarking on an expansion of the business.

The following information is avaliable on the capitsl structure of the company:

$2000000$ Ordinary shares, with a market price of $R2\mathrm{.}75$ per share. The lalest dividend dectared was $80$ cents per share. A dividend growth of $9\%$ was maintained for the past $5$ years.

$1000000,12\%,$ R$1$ Preference sharns with a market value of R$3$ per share.

R$1000000,9\%,$ Debentures due in $7$ yoars and the current yield$-\%-$maturly is $10\%.$

R$70000014\%$ Bank loan, due in December $2029.$

Additional information:

Assume a company tax rate of $30\%.$

The beta of the company is $1\mathrm{.}4,$ a risk$-$free rate of $6\%$ and the retum on the market is $14\%.$

Round off all workings$/$answers to two decimal places where appicable.

Required:

$1\mathrm{.}1.$ Calculate the weighted average cost of capital $($WACC$).$ Use the Gordon Growth Model to calculate the cost of equity.

$(22$ marks$)$

$1\mathrm{.}2.$ Calculate the cost of equity, using the Capital Asset Pricing Model.

$(3$ marks$)$