Profit for the year R3 million R4 million
Gross dividends R1.5 million R2 million
Market value per ordinary share R4 R1.60
Number of ordinary shares 5 million 10 million
Gross interest yield on loan capital (YTM) 8% 12%
Market value of loan R10 million R16 million

The annual growth rate in dividends is 5% for Tswinga Ltd and 8% for Muledane Ltd. Corporate tax rate is 28%.

Required:
a) Calculate the market value weighted average cost of capital (WACC) of Tswinga Ltd and of Muledane Ltd. (22 marks)
b) Discuss two possible reasons why the cost of ordinary share capital differs between the two businesses. (4 marks)

Posted Date: 9/14/2015 9:36:24 AM | Location : South Africa

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