Use the information provided below to calculate the cost (as a percentage expressed to two...
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Accounting
Use the information provided below to calculate the cost (as a percentage expressed to two decimal places) of ordinary share financing, preference share financing and the loan. (6 marks) INFORMATION Gypsey Limited intends investing in a project and is considering using the following three sources of finance: Ordinary shares The market price of an ordinary share of Gypsey Limited is R200 and the total ordinary share capital is R2 000000 . The shares were initially sold for R160 each. The dividend per share at the end of the previous year was R30. The expected growth rate in dividends is 10%. The dividend growth model is used to estimate the cost of the ordinary shares. Preference shares Gypsey Limited intends issuing 800015% preference shares at R210 per share. The cost of issuing the shares is estimated at R10 each. Long-term loan Gypsey Limited intends obtaining a long-term loan. The loan of R1 160000 is expected to be obtained at an interest rate of 12%. The marginal tax rate of Gypsey Limited is 28%
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