IH has 210 000 ordinary shares in issue. The market price for each share was R55,80...

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IH has 210 000 ordinary shares in issue. The market price for each share was R55,80 at the balance sheet date of 30 June 2023. The risk premium is 7.76% and IH's beta is 0.97. On 30 June 2023, the government bonds were paying 6.54%. IH dividend has grown from 218 cents on 30 June 2016 to 350 cents per share on 30 June 2023. IH has 4 540 000 non-redeemable preference shares with a total book value of R6 810 000. Holders of the shares are entitled to a preference dividend of 7.5%. Similar shares are trading at R1,18 on the market. At 30 June, IH's debt comprised of 4 000 bonds with a total face value of R4 000 000. They were issued in July 2011 and still have 8 years to maturity as from 30 June 2023. They pay a coupon of 10% per year. Bonds in a similar class are trading at R1 090 each. Tax rate is 30%. Calculate the cost of equity using: Q.16.1 Dividend growth model; and Q.16.2 Capital asset pricing model (SML approach); Q.16.3 What is the cost of the preference shares? (3 marks) Q.16.4 Calculate the cost of bonds to be used in determination of weighted average cost of capital. (3 marks) Q.16.5 Calculate the weighted average cost of capital for IH using the capital asset pricing model. (8 marks) A- B I E F (3 marks) (2 marks) IH has 210 000 ordinary shares in issue. The market price for each share was R55,80 at the balance sheet date of 30 June 2023. The risk premium is 7.76% and IH's beta is 0.97. On 30 June 2023, the government bonds were paying 6.54%. IH dividend has grown from 218 cents on 30 June 2016 to 350 cents per share on 30 June 2023. IH has 4 540 000 non-redeemable preference shares with a total book value of R6 810 000. Holders of the shares are entitled to a preference dividend of 7.5%. Similar shares are trading at R1,18 on the market. At 30 June, IH's debt comprised of 4 000 bonds with a total face value of R4 000 000. They were issued in July 2011 and still have 8 years to maturity as from 30 June 2023. They pay a coupon of 10% per year. Bonds in a similar class are trading at R1 090 each. Tax rate is 30%. Calculate the cost of equity using: Q.16.1 Dividend growth model; and Q.16.2 Capital asset pricing model (SML approach); Q.16.3 What is the cost of the preference shares? (3 marks) Q.16.4 Calculate the cost of bonds to be used in determination of weighted average cost of capital. (3 marks) Q.16.5 Calculate the weighted average cost of capital for IH using the capital asset pricing model. (8 marks) A- B I E F (3 marks) (2 marks)

Answer rating: 100% (QA)

Solutions To calculate the cost of equity using the dividend growth model Q161 we need the following information Dividend per share DPS The dividend has grown from 218 cents in June 2016 to 350 cents ... View the full answer