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Answer ALL questions. QUESTION 1 "All companies require capital or funding either to start a business or for expansion." In light of the above statement critically discuss the following sources of long-term financing for a business: 1.1 Retained earnings 1.2 Ordinary shares and Rights issue 1.3 Venture capital 1.4 Debentures QUESTION 2 The following information is available on the capital structure of the company: 1 500 000 Ordinary shares, with a market price of R4 per share. The latest dividend declared was 93 cents per share. A dividend growth of 14% was maintained for the past 5 years. 12%, R1 Preference shares with a market value of R3 per share. 9%, Debentures due in 7 years and the current yield-to-maturity is 10%. 15% Bank loan, due in June 2024. 1 000 000 R1 000 000 R1 200 000 (25 Marks) You have been appointed as a financial consultant by the directors of Cochin Limited (Ltd). They require you to calculate the cost of capital of the company. Additional information: 1. The company has a tax rate of 30%. 2. The beta of the company is 1.7, a risk free rate of 5% and the return on the market is 17%. (5 marks) (10 marks) (5 marks) (5 marks) (25 Marks) Required: 2.1 Calculate the weighted average cost of capital (WACC). Use the Gordon Growth Model to calculate the cost of equity. (22 marks) 2.2 Calculate the cost of equity, using the Capital Asset Pricing Model. (3 marks)

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