QUESTION TWO $[25]$

Eseyl Industries Ltd uses a combination of shares and debt in their capital structure. Details of their capital structure are provided below:

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There are $12000000$ R$6$ ordinary shares in issue and the current market price is R$11$ per share. The latest dividend paid was R$1\mathrm{.}62$ and a $11\%$ average growth for the past six years was maintained.

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The company has $5200000$ R$6,12\%$ preference shares with a market price of R$7\mathrm{.}80$ per share.

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The company has a public traded debt with a face value of R$17000000.$ The coupon rate of the debenture is $11\%$ and the yield to maturity of $16\%.$ The debenture has $5$ years to maturity.

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The company also has a bank overdraft of R$7000000$ due in $4$ years$$ time and interest is charged at $16\%$ per annum.

Additional information:

$1.$ The company has a beta of $2\mathrm{.}1,$ a risk$-$free rate of $8\mathrm{.}9\%$ and a return on the market of $17\mathrm{.}3\%.$

$2.$ Company tax rate is $28\%.$

Required:

$2\mathrm{.}1.$ Calculate the weighted average cost of capital, using the Gordon Growth Model to calculate the cost of ordinary shares. $(22)$

$2\mathrm{.}2.$ Calculate the cost of ordinary shares, using the Capital Asset Pricing Model.