Work out question 4, both 4.1 and 4.2

Note: Their after tax cost of cost of capital is 10% Their tax rate is 30% Required: Determine the present value of cash flows associated with each alternative. Which option will you recommend to Cheetah Wheel & Alignment? [20] QUESTION FOUR ZeebeeDee Ltd has the following capital structure Equity 2 000 000 R2 ordinary shares, market price R2,50 Preference 1 000 000 12% R1 preference shares, market price R1,50 Reserves R1 500 000 Bank loan R500 000 15% bank loan Debentures R1 750 000 16% debentures, market price R150 (issued at R100), The current and expected future rate of ordinary share dividend is 20% with no growth Tax rate is 30% Required: 4.1 Calculate the weighted average cost capital using the Dividend Growth Model (15) 42 If the entity requires a further R500 000, identify and explain which option they will use to finance this amount (5) [20] 12) (2) QUESTION FIVE 5.1 Explain what a residual dividend policy is. 52 Bippi Ltd follows a strict residual dividend policy. Their debt equity ratio is 2.1 5.2.1. If their profits are R280 000 for the current year, what is the maximum amount of capital spending possible with no new equity? 5.22 If planned investment outlays for the current year are R850 000, wil Blippi be able to pay a dividend? 5.2.3. Does Blippi Lid maintain a constant dividend payout? Explain 5.3 Explain if retained earnings are a free source of finance for the business 54 Distinguish between a merger and acquisition and explain which is the most common type in South Africa, justify your answer (2) (2) (2) (10) END OF QUESTION PAPER 3