QUESTION 2 (25 Marks) The directors of Hatfield Industries have appointed you as their financial consultant. They are seeking new project investments and require you to calculate the present cost of capital of the company. The capital structure is listed below: 2 million ordinary shares with a par value of 50 cents each, currently trading at R4 per share. The company has a beta (B) of 1.4, the risk free (Rf) rate is 9% and the return on the market (Rm) is 17%. 1.5 million 13%, R2 preference shares, with a market value of R2.5 per share. R3 million 11%, debentures due in 5 years and the current yield-to-maturity is 8%. R800 000 16%, bank loan, due in December 2020. The company also has a general reserve of R5 200 000 and a retained income of R6 500 000. Additional information: The dividend growth of 12% per annum was maintained for the past 4 years. The latest dividend paid was cents per share. Assume a company tax rate of 30%. 2.2 Required: 2.1 Calculate the weighted average cost of capital. Use the Capital Asset Pricing Model to calculate the cost of equity. Calculate the cost of equity, using the Gordon Growth Model. QUESTION 3 "The very nature of finance is that it cannot be profitable unless it is significantly leveraged..." In light of the above statement critically discuss the following sources of long-term financing for a business: Ordinary and preference shares Debentures Venture capital (22 marks) (3 marks) (25 Marks) (10 marks) (9 marks) (6 marks)