QUESTION $4(10$ marks$)$

MAC$4865$IAssignment$\_02$

Upped Ltd is financed only by equity, valued at R $20$ million. Upped Ltd pays a dividend of R $2200000$ to its shareholders annually.

Downed Ltd$\text{'}$s capital structure includes debt, valued at $R5$ million $($based on market value$),$ in addition to equity valued at $R20$ million. Downed Ltd$\text{'}$s debt incurs interest paid of R$400000$ per annum, where dividends are paid to shareholders amounting to R$1500000$ per annum.

Upped Ltd and Downed Ltd are identical in all operating and risk characteristics, both based