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You have been appointed as a financial consultant by the directors of Ntuzuma Holdings. They require you to calculate the cost of capital of the

You have been appointed as a financial consultant by the directors of Ntuzuma Holdings. They require you to calculate
the cost of capital of the company as they are embarking on an expansion of the business.
The following information is available on the capital structure of the company:
2000000 Ordinary shares, with a market price of R2.75 per share. The latest dividend
declared was 80 cents per share. A dividend growth of 9% was maintained for
the past 5 years.
100000012%, R1 Preference shares with a market value of R3 per share.
R10000009%, Debentures due in 7 years and the current yield-to-maturity is 10%.
R70000014% Bank loan, due in December 2029.
Additional information:
1. Assume a company tax rate of 30%.
2. The beta of the company is 1.4, a risk-free rate of 6% and the return on the market is
14%.
3. Round off all workings/answers to two decimal places where applicable.
Required:
1.1. Calculate the weighted average cost of capital (WACC). Use the Gordon Growth Model to calculate the
cost of equity.
(22 marks)
1.2. Calculate the cost of equity, using the Capital Asset Pricing Model.

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