rendy Limited uses a combination of shares and debt in their capital structure.

There are 2 million R1 ordinary shares in issue and the current market price is R2.50 per share. The latest dividend paid was 40 cents and a 9% average growth for the past six years was maintained.

The company has 1 000 000 R2, 8% preference shares with a market price of R1.80 per share.

Trendy Limited has a public traded debt with a face value of R2 million. The coupon rate of the debenture is 7% and the current yield to maturity of 10%. The debenture has 6 years to maturity

They also have a bank overdraft of R600 000 due in 3 years time and interest is charged at 15% per annum.

Additional information:

• Trendy Limited has a beta of 2.1, a risk-free rate of 7% and a return on the market of 16%.
• Company tax rate is 30%

Calculate the cost of equity, using the Capital Asset Pricing Model.