Review the case study provided below and then answer the questions that follow using the

templates if provided and explanations where needed. Provide all calculations.

Mr C Ltd$,$ a clothing retailer, was founded in $1998.$ In $2007$ it was listed on the JSE and the

share price is currently trading at R$5\mathrm{.}40$ at the close of the market today. The financial director

is concerned that the capital structure is not as efficient as it could be and the company$$s

capital is too expensive. Mr C$$s capital structure is currently as follows:

Source: Book value

R

$10000000$ ordinary shares $($R$1$ each$)10000000$

$13\%$ non$-$redeemable preference shares $6000000$

$9\%10000000$ bonds $($debt$)10000000$

Additional info:

$$ Ordinary shares

The most recent dividend was $70$c per share, and the directors are following an

$8\%$ per annum growth policy with regard to dividends. The managing director is

of the opinion that they will continue with this policy for the foreseeable future.

$$ Non$-$redeemable preference shares

The preference shares currently trade at $80$c per share and are convertible at the

discretion of the directors.

$$ Bonds $($debt$)$

Bonds currently trade at $95$c each and are redeemable at par in two years$$ time.

Coupons are paid annually.

$$ Assume a corporate tax rate of $28\%.$

Required

Calculate the cost of:

$($a$)$ Equity $(4)$

$($b$)$ Preference shares $(4)$

$($c$)$ Debt $(4)$

Using the table below and given market values of each form of capital, calculate

the weighted average cost of capital $($WACC$)$ for Mr C using your answers in

Question a$,$ b and c$.(8)$

Market values Weighting Cost Weighted cost

Equity $54000000$

Preference shares $4800000$

Bonds $9500000$

Total value $68300000$