You have been appointed as a financial consultant by the directors of Chennai Holdings. They require...

  

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You have been appointed as a financial consultant by the directors of Chennai Holdings. They require you to calculate the cost of capital of the company. The following information is available on the capital structure of the company: 1500 000 Ordinary shares with a market price of R3 per share. The latest dividend declared was 90 cents per share. A dividend growth of 13% was maintained for the past 5 years. 1 000 000 12%, R1 Preference shares with a market value of R2 per share. R1 000 000 9%, Debentures due in 7 years and the current yield-to-maturity is 10%. R700 000 14% Bank loan, due in December 2013, 2. The beta of the company is 1.6, a risk free rate of 7% and the return on the market is 1.1 Calculate the weighted average cost of capital. Use the Gordon Growth Model to 1.2 Calculate the cost of equity, using the Capital Asset Pricing Model and discuss the possible Additional information: 1. The company has a tax rate of 30%. 15%. Required: calculate the cost of equity. shortfalls of this method. You have been appointed as a financial consultant by the directors of Chennai Holdings. They require you to calculate the cost of capital of the company. The following information is available on the capital structure of the company: 1500 000 Ordinary shares with a market price of R3 per share. The latest dividend declared was 90 cents per share. A dividend growth of 13% was maintained for the past 5 years. 1 000 000 12%, R1 Preference shares with a market value of R2 per share. R1 000 000 9%, Debentures due in 7 years and the current yield-to-maturity is 10%. R700 000 14% Bank loan, due in December 2013, 2. The beta of the company is 1.6, a risk free rate of 7% and the return on the market is 1.1 Calculate the weighted average cost of capital. Use the Gordon Growth Model to 1.2 Calculate the cost of equity, using the Capital Asset Pricing Model and discuss the possible Additional information: 1. The company has a tax rate of 30%. 15%. Required: calculate the cost of equity. shortfalls of this method.

Answer rating: 100% (QA)

1 weighted average cost of capital 2861 market value amount proportion Ordinary sh... View the full answer