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QUESTION FOUR Evaluate the Weighted Average Cost of Capital (WACC) technique of decision making At a board meeting a director remarks Selling preference shares with
QUESTION FOUR Evaluate the Weighted Average Cost of Capital (WACC) technique of decision making At a board meeting a director remarks "Selling preference shares with a return of 9% or debentures with a return of 9% is really one and the same thing". The company has the option of raising the R400 000 through either: a. The sale of 40 000 preference shares at R10 per share or b. 4 000 debentures of R100 each. NB: The tax rate is 30% Do you agree with the director's assertion? Justify your answer with the aid of appropriate calculations. Juanta Manufacturers shares have a beta of 1.40. At present government bonds/treasury bills present a return of 6% and the market return is 12%. Juanta's dividend was R2.20 per share last year and they expect dividends to grow at 5%. Their shares sell for R30 per share at present (par value R20). Calculate Juanta's cost of equity using: The Dividend Growth model The Capital Asset pricing model. Analyse the reason/s for each method presenting different answers
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