You have been appointed as a financial consultant by the Directors of auckland holdings they require you to calculate the cost of capital of the company. The following information is available on the capital structure of the company: 1 500 000 Ordinary Shares, with a market price R3 per share. The latest dividend was 95 cents per share. A dividend growth of 10% was maintained for the past 5 years. 1000 000 12%, R1 Preference shares with a market value of R2 per share. R1 000 000 9%, Debentures due in 7 years and the current yield-to-matuarity is 10%. R1 200 000 14% Bank loan, due in december 2022. Addistional Information: 1. The company has a tax rate of 30%. 2. The beta of the company is 1.5, a risk free rate of 6% and the return on the market is 15%. 

Required: 

1. Calculate the weighted average cost of capital WACC. Use the Gordon Growth Model to calculate the cost of equity. 

2. Calculate the cost of equity, using Capital Asset Pricing Model.

Answer rating: 100% (QA)

Answer 11 Calculate the weighted average cost of capital WACC 166 Working as under Capital Struct... View the full answer