QUESTION $3$

$(20$ Marks$)$

$3\mathrm{.}1$

REQUIRED

Use the information provided below to calculate the following:

$3\mathrm{.}1\mathrm{.}1$

The cost $($as a percentage expressed to two decimal places$)$ of ordinary share financing, preference share financing and the loan.

$(9$ Marks$)$

$3\mathrm{.}1\mathrm{.}2$

The weighted average cost of capital $($expressed to two decimal places$).$

$(4$ Marks$)$

INFORMATION

Avery Limited is expected to commence operations during March $2025$ and the promoters are considering using the following three sources of finance:

Ordinary shares

Avery Limited expects to sell $300000$ ordinary shares at R$10$ each. The floatation cost is expected to be R$1$ per share. The first dividend per share is expected to be $180$ cents.

Preference shares

$5000(12\%)$ preference shares are expected to be issued at R$42$ per share. The cost of issuing the shares is estimated at R$2$ per share.

Long$-$term loan

Avery Limited intends obtaining a long$-$term loan. The loan of R$1790000$ is expected to be obtained at an interest rate of $12\%.$

Additional information

The expected growth rate in ordinary dividends is $10\%.$

The marginal tax rate of Avery Limited is $27\%.$

$3\mathrm{.}2$

REQUIRED

Calculate the cash conversion cycle from the information provided below. Note: Use the formulas provided in the formula sheet only $($that appear after QUESTION $5).$

$(7$ Marks$)$

INFORMATION

The following information was obtained from the records of Dyson Traders for $2024,$ the first year of operations:

Cash sales for the year

R$1200000$

Credit sales for the year

R$1800000$

Credit purchases for the year

R$1300000$

Cash purchases for the year

R$700000$

Inventory on $31$ December $2024$

R$111000$

Amount owed by debtors on $31$ December $2024$

R$200000$

Amount owed to creditors on $31$ December $2024$

R$130000$

Average age of inventories

$20$ days