Calculate the weighted average cost of capital, Basic Statistics

The Foschini Group has just issued a batch of preference shares that will pay a constant dividend of R8, beginning 6 years from now. If the required rate of return is 8%, what does the share cost today?

Bassa Braziers Ltd, operate in the fabrication industry. They feel that some of their older gas welding machines need to be replaced. They seek your help in order to calculate their cost of capital.

Their present capital structure is as follows:

600 000 R2 ordinary shares now trading at R2,40 per share.

200 000 preference shares trading at R2,50 per share (issued at R3 per share). 10 % p.a. fixed rate of interest.

A bank loan of R1 000 000 at 12 % p.a. (payable in 5 years time)

Additional data

a. The company?s beta is 1,4. A return on market of 15% and a risk free rate of 6 %.

b. Its current tax rate is 28 %.

c. Its current dividend is 50c per share and they expect their dividends to grow by 7 % p.a.

Required

1. Assuming that the company uses the CAPM to calculate their cost of equity, calculate their weighted average cost of capital. 

2. A further R500 000 is needed to finance the expansion. Which option should they use (from ordinary shares, preference shares or loan financing) and why?

Posted Date: 4/6/2013 5:05:24 AM | Location : United States







Related Discussions:- Calculate the weighted average cost of capital, Assignment Help, Ask Question on Calculate the weighted average cost of capital, Get Answer, Expert's Help, Calculate the weighted average cost of capital Discussions

Write discussion on Calculate the weighted average cost of capital
Your posts are moderated
Related Questions
variable cost per unit remain constent why


What do u mean by Vectors? Explain its types.

To illustrate the importance of model selection. We will use only the first four observations to estimate the function f such that ini t. h = f(h. d) for two different models.

Consider an economy specified by the following:       Y = PE = C + I + G + NX                            (Income identity)       C = 400 + 0.9YD

example of descriptive and inferential statistics?

I need help with ledger accounts and the financial statement

Holding period return: Holding period return is the return earned by the virtue of holding an asset over a given period. The return is equal to the income and other gains earned fr

difference of them for covering the following: 1.purpose of reporting 2.FORMAT OF INCOME STATEMENT

1. What size sample will be needed to construct a 95% confidence interval on a ballot issue if the estimate must be 2% of the actual percent. This issue looks very close in the el