Question 5

5.2 REQUIRED Use the information provided below to calculate the weighted average cost of capital (expressed to two decimal places).

INFORMATION

MVP Limited approached Nedbank for a long-term loan to partly fund the purchase of expensive, specialised machinery. Nedbank is prepared to grant a loan of R400 000, at a cost of 20%. MVP Limited uses the after tax cost of debt and the marginal tax rate is 30%.

MVP Limited also aims to sell 100 000 ordinary shares at R6 each. The cost of the ordinary shares using the capital asset pricing model is 19.90%.