Question $3-$ Cost of Capital

Munya Tsatsa $($Pty$)$ Ltd requires you to calculate the weighted average cost of capital

for the company. The following information is available on the capital structure of the

company:

$1500000$ Ordinary shares with a market price of R$16$ per share. The latest dividend

declared by Munya Tsatsa Ltd is R$4$ per share. A dividend growth of $20\%$ was

maintained by the company for the past $2$ years.

$1000000$ shares, $20\%,R4$ Preference shares with a market value of $R10$ per share.

Debentures with the value of R $8000000$ due in $7$ years and the withan interest rate

of $20\%($before tax$)$

Bank Loan of R$6000000,$ with an interest of $25\%($before tax$).$

Additional Information

The company has a tax rate of $30\%.$ The beta of the company is $1\mathrm{.}5,$a risk$-$free rate

of $15\%,$ and the return on the market is $30\%.$

Required:

a$.$ Calculate the weighted average cost of capital for Munya Tsatsa Ltd$.$ Use

the GordonGrowth Model to calculate the cost of equity.

$($Use table format to calculate the WACC$).$ Round off to $2$ decimal places.

b$.$ Use the Capital Asset Pricing Model to calculate the cost of capital.