COMPULSORY ASSIGNMENT 02/2017 FOR THE FIRST SEMESTER THIS ASSIGNMENT MUST BE COMPLETED IN FULL AND SUBMI'ITED TO REACH THE UNIVERSITY BEFORE OR ON THE DUE DATE OF 5 APRIL 2017. LONGER TYPE QUESTIONS (100 marks) (120 minutes) Unique number 604271 Set your calculator on four decimal places for this assignment. QUESTION 1 (22 marks) Angle Steel Limited is financed as follows: R'OOO Non-distributable reserves 133 000 Long-term loans 98 500 200 million ordinary shares 200 000 Retained Income 9 555 Bonds 170 800 Their target capital structure is (D:E) 40:60. The shares are currently trading at R320 per share. Investors expect earnings and dividends to grow at a constant rate of 8% in the future. The previous dividend that was paid amounted to R4,60 per share. The cost of debt before tax is 13%. The risk-free rate is considered to be 8,5% and the market return is 15%. The current tax rate is 28% and their beta is 1,1. REQUIRED: a) Show the components of total equity financed amounts as well as the components of debt financed amounts separately, then calculate the capital structure of Angle Steel Limited (based on book values). [Round your answer to the nearest full percentages] (6) b) Angle Steel needs to raise R30 million for a project. Advise them on how they should finance the new project keeping the target capital structure in mind. (Show all the relevant calculations.) (4) 0) Calculate the cost of ordinary shares (cost of equity) by using the capital asset pricing model (CAPM) approach. [Round your answer to two decimal places] (4) d) Calculate the WACC using the target capital structure. Use the cost of ordinary shares (cost of equity, K9) as calculated in (0). [Do not round the answer in (c) to the nearest full percentage] (8) [22]