QUESTION 2 (20 Marks) REQUIRED Use the information provided below to calculate the following (expressed to two decimal places): 2.1 Cost of equity using the Capital Asset Pricing Model (4 marks) 2.2 Cost of preference shares (4 marks) 2.3 Cost of debt (4 marks) 2.4 Weighted average cost of capital (using your answers from questions 2.1 to 2.3) (3 marks) 2.5 Cost of equity using the Dividend Growth Model. (5 marks)

INFORMATION Kingston Limited intends raising finance for a proposed new project. The financial manager has provided the following information to determine the present cost of capital to the company: The capital structure consists of the following: 4 million ordinary shares issued at R4 each but currently trading at R6 each. 3 million 12%, R4 preference shares which incurred floatation costs of R0.16 per share. R4 000 000 15% Bank loan, due in July 2027. Additional information The companys beta coefficient is 1.5. The risk-free rate is 10%. The return on the market is 25%. A dividend growth of 10% per annum on ordinary shares was maintained over the past five years. The latest dividend paid was 150 cents per share. Assume that the company tax rate is 28%.