You have been appointed as a financial consultant by the directors of Jathig Limited. They...
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Accounting
You have been appointed as a financial consultant by the directors of Jathig Limited. 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 of R4 per share. The latest dividend declared was 90 cents per share. A dividend growth of 13% was maintained for the past 5 years. 1 000 000, 12%, R1 Preference shares with a market value of R3 per share. R1 000 000, 9%, Debentures due in 7 years and the current yield-to-maturity is 10%. R900 000, 14% Bank loan. Additional information: 1. The company has a tax rate of 30%. 2. The beta of the company is 1.8, a risk-free rate of 7% and the return on the market is 15%. Required: 1.1 Calculate the weighted average cost of capital (WACC). Use the Gordon Growth Model to calculate the cost of equity. (20)
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