Leigh Jones is the chief financial officer (CFO) of Computron Industries, an electronic calculator producer. As...

 

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Leigh Jones is the chief financial officer (CFO) of Computron Industries, an electronic calculator producer. As a financial management graduate, you are expected to assist the CFO of Computron Industries with financial analysis. During the past few years, the company has been too constrained by the high cost of capital to make investments. Leigh is interested in measuring the company's overall cost of capital, and provided you with the following data, which she believes may be relevant to your task: Ordinary shares (60%) : Ordinary shares are currently trading at R12 per share. An ordinary dividend of R0,50 per share has recently been paid and dividends are expected to grow at 10% per annum for the foreseeable future. Preference shares (20%): Preference shares are currently trading at R1.10 per share. The company is expected to issue R0.12 dividends per share in the next financial year, and flotation costs would amount to R0.10 per share. Long-term debt (20 %): R1 000,00 par value, 10% coupon and five-year bonds that could be sold for R1 200,00, will be issued with a flotation cost of R25,00 per bond. Company tax rate is currently 28%. REQUIRED 1.1 Using the information provided above, calculate the weighted average cost of capital (WACC) for the company. (11 marks) Leigh Jones is the chief financial officer (CFO) of Computron Industries, an electronic calculator producer. As a financial management graduate, you are expected to assist the CFO of Computron Industries with financial analysis. During the past few years, the company has been too constrained by the high cost of capital to make investments. Leigh is interested in measuring the company's overall cost of capital, and provided you with the following data, which she believes may be relevant to your task: Ordinary shares (60%) : Ordinary shares are currently trading at R12 per share. An ordinary dividend of R0,50 per share has recently been paid and dividends are expected to grow at 10% per annum for the foreseeable future. Preference shares (20%): Preference shares are currently trading at R1.10 per share. The company is expected to issue R0.12 dividends per share in the next financial year, and flotation costs would amount to R0.10 per share. Long-term debt (20 %): R1 000,00 par value, 10% coupon and five-year bonds that could be sold for R1 200,00, will be issued with a flotation cost of R25,00 per bond. Company tax rate is currently 28%. REQUIRED 1.1 Using the information provided above, calculate the weighted average cost of capital (WACC) for the company. (11 marks)

Answer rating: 100% (QA)

To calculate the weighted average cost of capital WACC for Computron Industries you need to determine the cost of each component of capital and then w... View the full answer