Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 3 [30] You are the newly appointed financial manager of Your Concerns (Pty) Ltd. The board of directors invited you to a meeting where

image text in transcribed

Question 3 [30] You are the newly appointed financial manager of Your Concerns (Pty) Ltd. The board of directors invited you to a meeting where you will discuss the WACC and future financing methods for the company. You received the following information to prepare for the meeting: Your Concerns (Pty) Ltd Extracts from the statement of financial position for the year ending December 2021 2021 Equity Share capital (100 ordinary shares) 100 000 Non-current liabilities Long-term liabilities 50 000 A dividend of R50 per share will be declared in 2022. An 8% increase in dividends per share is expected for the 2023 financial year and a dividend of R60 per share will be paid in the 2024 financial year of assessment. The company expects a constant growth of 5% after the 2024 financial year of assessment. The shareholders of the ordinary shares expect a return of 15% per year. Bonds similar to the long-term liabilities have a yield to maturity of 10.5% per annum. The income tax rate is 30%. Required: Round off your answers to two decimals. 3.1. Using the constant growth valuation method, calculate the total cost of the ordinary shares. (15) 3.2. Based on the calculation in 3.1, calculate the weighted average cost of capital (WACC) for Your Concerns (Pty) Ltd. (12) 3.3. Considering the cost of equity versus the cost of debt, advise the directors whether they should fund future projects using money obtained from the shareholders or borrowed from financial institutions, for example banks. (3)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance And Sustainability

Authors: William Sun, Celine Louche, Roland Perez

1st Edition

1780520921, 978-1780520926

More Books

Students also viewed these Finance questions

Question

1. What are your creative strengths?

Answered: 1 week ago

Question

What metaphors might describe how we work together?

Answered: 1 week ago