QUESTION The summarised statement of financial position of Dple at 30 June 20X9 was as follows: K'000 K'000 Fixed assets 15,350 Current assets 5.900 (2.600) Current liabilities Net current assets 9% debentures 3,300 (8,000) 10.650 Ordinary share capital (25 ngwee shares) 7% preference shares (K1 shares) Share premium account Retained profit 2,000 1,000 1.100 6.550 10,650 The current price of the ordinary shares is 1.35 ex dividend. The dividend of 10 ngwee is payable in the next few days. The expected rate of growth of the dividend is 9% per annum. The current price of the preference shares is 77 ngwee and the dividend has recently been paid. The debenture interest has also been paid recently and the debentures are currently trading at K80 per K100 nominal. Assume that D plc. issued the debentures one year ago to finance a new investment. Ignore corporation tax. (a) Calculate the gearing ratio for D plc. using market values (4 Marks) (b) Calculate the cost of ordinary share capital, the cost of preference share capital, and the cost of debentures. (6 Marks) (c) If the cupital asset pricing model (CAPM) were to be used to calculate the cost of ordinary share capital for D plc., state the three (3) pieces of data needed. (3 Marks) (d) Calculate the company's weighted average cost of capital (WACC) using respective market values as weighting factors. (8 Marks) (e) Give any four (4) reasons why D ple may have issued debentures rather than preference shares to raise the required finance. (4 Marks) TOTAL = 25 Marks QUESTION The summarised statement of financial position of Dple at 30 June 20X9 was as follows: K'000 K'000 Fixed assets 15,350 Current assets 5.900 (2.600) Current liabilities Net current assets 9% debentures 3,300 (8,000) 10.650 Ordinary share capital (25 ngwee shares) 7% preference shares (K1 shares) Share premium account Retained profit 2,000 1,000 1.100 6.550 10,650 The current price of the ordinary shares is 1.35 ex dividend. The dividend of 10 ngwee is payable in the next few days. The expected rate of growth of the dividend is 9% per annum. The current price of the preference shares is 77 ngwee and the dividend has recently been paid. The debenture interest has also been paid recently and the debentures are currently trading at K80 per K100 nominal. Assume that D plc. issued the debentures one year ago to finance a new investment. Ignore corporation tax. (a) Calculate the gearing ratio for D plc. using market values (4 Marks) (b) Calculate the cost of ordinary share capital, the cost of preference share capital, and the cost of debentures. (6 Marks) (c) If the cupital asset pricing model (CAPM) were to be used to calculate the cost of ordinary share capital for D plc., state the three (3) pieces of data needed. (3 Marks) (d) Calculate the company's weighted average cost of capital (WACC) using respective market values as weighting factors. (8 Marks) (e) Give any four (4) reasons why D ple may have issued debentures rather than preference shares to raise the required finance. (4 Marks) TOTAL = 25 Marks