QUESTION ONE $[25]$

Information concerning the capital structure of Praxit Finance Company is as follows:

$$ The current risk$-$free rate is $7,25\%,$ while the current market portfolio return

is $12,2\%.$ The company$$s beta is $1.$

$$ The preference share capital was issued at R$5$ per share. An annual $10\%$ dividend is paid at

the end of each year. The shares are currently trading at R$5,50$ per share.

$$ Debentures due in $7$ years with a before tax cost of $10\%$

$$ The company tax rate is $28\%.$

REQUIRED:

Calculate the cost of:

$1\mathrm{.}1$ Ordinary shares $(3)$

$1\mathrm{.}2$ Preference shares $(3)$

$1\mathrm{.}3$ Debt $(3)$

$1\mathrm{.}4$ Using the table below and the given market values of every form of capital, calculate the

weighted average cost of capital $($WACC$)$ using your answers from above. $(16)$

Capital source Market Value Weighting Cost Weighted Cost

Ordinary Shares

Preference Shares

Debt

Total