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Question 3 ( 2 5 Marks ) You have been appointed as a financial consultant by the directors of Riyadh Holdings. They require you to
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You have been appointed as a financial consultant by the directors of Riyadh Holdings. They require you to calculate the
cost of capital of the company.
The following information is available on the capital structure of the company:
Ordinary shares, with a market price of R per share. The latest dividend
declared was cents per share. A dividend growth of was maintained for
the past years.
R Preference shares with a market value of R per share.
R Debentures due in years and the current yieldtomaturity is
R Bank loan, due in December
Additional information:
The company has a tax rate of
The beta of the company is a riskfree rate of and the return on the market is
Round off all workingsanswers to two decimal places where applicable.
Required:
Calculate the weighted average cost of capital WACC Use the Gordon Growth Model to calculate the
cost of equity.
marks
Calculate the cost of equity, using the Capital Asset Pricing Model. marks
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