The Value Group (Pty) Ltd has grown from strength to strength, starting with the purchase of Freightpak, on the 1st of March 1999, followed by the acquisition of Rent-a-Bakkie in the late 2000s. The company has a capital structure of 10 000 000 R1 ordinary shares, market price R1, 50. The preference shares are 10 000 000 12% R1 preference shares, market price of R3,50. They have received a bank loan from Investec Bank of 1 500 000 10%. Debentures 1 000 000 at par value 10,5% market price R120 (issued at R100)

In order to equalise the tax effect, the debenture and bank loan interest weighting is reduced by multiplying it by 1 minus the given corporate tax rate (27%).

The current and expected future rate of ordinary share dividends is 9%.

As the Finance and Marketing manager you would like to make crucial capital investment decisions. The board of directors has asked you to:

a) Calculate the overall market value (5)

b) Calculate the overall cost using the Dividend Discount Model (DDM) (5)

c) Calculate the WACC - Weighted average cost of capital (5)