QUESTION $4(20$ Marks$)$

REQUIRED

Use the information provided below to answer the following questions:

$4\mathrm{.}1$ Calculate the weighted average cost of capital $($calculations expressed to two decimal places, where

applicable$).(16$ marks$)$

$4\mathrm{.}2$ Calculate the cost of equity using the Gordon Growth Model $($expressed to two decimal places$).(4$ marks$)$

INFORMATION

Capri Limited intends raising finance for a proposed new project. The financial manager has provided the

following information to determine the present cost of capital to the company:

The capital structure consists of the following:

$2$ million ordinary shares issued at R$2$ each but currently trading at R$3$ each. The company$$s beta coefficient

is $1\mathrm{.}4.$ The risk$-$free rate is $9\%.$ The return on the market is $17\%.$

$1$ million $12\%,$ R$2$ preference shares with a market value of R$3$ per share.

$$ R$100000020\%$ Bank loan, due in January $2026.$

Additional information

$$ The Capital Asset Pricing Model is used to determine the cost of equity.

$$ A dividend growth of $10\%$ per annum on ordinary shares was maintained over the past five years. The latest

dividend paid was $80$ cents per share.

$$ Assume that the company tax rate is $28\%$