Question $1$

The directors of woolies limited have appointed you as their financial consultant. They are considering new investment projects and need you to calculate the cost of capital for the company.

The present capital structure is as follow:

$2000000$ ordinary shares with a par value of $75$ cents per share. these shares are currently trading at R$4\mathrm{.}50$ per share and latest dividend paid is $30$ cents. An average dividend growth of $13\%$ is maintained.

$50000014\%$ R$3\mathrm{.}00$ preference shares, with a market value of R$5\mathrm{.}00$ per share.

$5000000$ non$-$distributable reserves

R$12000008\%$ debentures due in $6$ years$$ time and the current yield to maturity is $6\%,$ and

R$80000013\%$ bank loan.

Additional information:

$ The company has a beta of $1\mathrm{.}7,$ a risk$-$free rate of $5\%$ and enjoys a premium of $8\%.$

$ The company$$s tax rate is $30\%$

Required:

Calculate the weighted average cost of capital, using the capital asset pricing model to calculate the cost of equity