Question 1 ( 2 5 Marks ) You have been appointed as a financial consultant by the
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You have been appointed as a financial consultant by the directors of Ntuzuma Holdings. They require you to calculate
the cost of capital of the company as they are embarking on an expansion of the business.
The following information is available on the capital structure of the company:
Ordinary shares, with a market price of R per share. The latest dividend
declared was cents per share. A dividend growth of was maintained for
the past years.
R Preference shares with a market value of R per share.
R Debentures due in years and the current yieldtomaturity is
R Bank loan, due in December
Additional information:
Assume a company tax rate of
The beta of the company is a riskfree rate of and the return on the market is
Round off all workingsanswers to two decimal places where applicable.
Required:
Calculate the weighted average cost of capital WACC Use the Gordon Growth Model to calculate the
cost of equity.
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Calculate the cost of equity, using the Capital Asset Pricing Model. marks
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