QUESTION THREE $(19$ MARKS$)$

Riyaad $($Pty$)$ Ltd has the following capital structure:

Equity: $5000000$ R$1$ ordinary shares, market price currently R$1,70$

Preference Shares: $2000000$ @ R$0\mathrm{.}50$ yielding $10\%,$ market price currently R$0\mathrm{.}55$

Debentures: R$2000000,15\%$ debentures, issued at R$1,00,$ market price currently R$1\mathrm{.}08$

Bank loan: R$100000012\%$ bank loan

Additional information

$$ They have paid a dividend of $20$c per share last year and they expect dividends to grow

by $5\%.$

$$ The corporate tax is $30\%.$

REQUIRED:

Marks

Sub$-$total Total

For each item making up the capital structure calculate the following:

a$)$ Market value

b$)$ Relative weight

c$)$ Market return

d$)$ Weighted average cost of capital

$4$

$4$

$6$

$5$

$19$

TOTAL $19$