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QUESTION TWO Cadbury Limited uses a combination of shares and debt in their capital structure....

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QUESTION TWO Cadbury Limited uses a combination of shares and debt in their capital structure. The details are given below:- There are 5 million R3.20 ordinary shares in issue and the current market price is R4.90 per share. The latest dividend paid was 53 cents and a 8% average growth for the past six years were maintained. The company has 2 750 000 R2.50, 9% preference shares with a market price of R3.80 per share. Cadbury Limited has a public traded debt with a face value of R3 million. The coupon rate of the debenture is 8% and the current yield to maturity of 11%. The debenture has 7 years to maturity. They also have a bank overdraft of R2million due in 4 years' time and interest is charged at 16% per annum. Cadbury Limited has a beta of 2.3, a risk-free rate of 6% and a return on the market of 16%. The company tax rate is 30%. 2.1 Calculate the weighted average cost of capital, using 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

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