The present capital sructure is as follows : 1.800,000 R2 ordinary shares now trading at r2,50...

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Finance

The present capital sructure is as follows :
1.800,000 R2 ordinary shares now trading at r2,50 per sharepreference
2. 250,000 preference shares trading at r2 per share (isuued atR3 per share).10% fixed rate of interest.
3.Abank loan of R1 500,000 AT 13% p.a (payable over 5 years.
Additional data: the company's beta is 1.3. The return on themarket is 14% and the risk fee rate is 7%.
its current tax rate is 28&. its current divided is 40c pershare and it expects its dividends to grow by 8%.
You are required to : Assuming that the company uses theSividend growth model to calculate its cost of equity. Calculateits weighted average cost of capital.
If a further R500,000 is needed to finance te expansion ,whichoption should they use from eitherr ordinary shares, preferenceshare or loan financing and why?
Please help with the calculations and explain

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4.4 Ratings (950 Votes)

MV of equityPrice of equitynumber of shares outstanding MV of equity25800000 2000000 MV of BondPar valuebonds outstandingage of par MV of Bond100015001 1500000 MV of Preferred equityPricenumber of shares outstanding MV See Answer

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