Barnyard Traders uses a combination of shares and debt in their capital structure. The details are given below: · There are 20 million R10.80 ordinary shares in issue and the current market price is R8.50 per share. The latest dividend paid was 99 cents and 11% average growth for the past six years was maintained. · The company has 10 500 000 R9, 8% preference shares with a market price of R8.80 per share. · Barnyard Traders has a public traded debt with a face value of R18 000 000. The coupon rate of the debenture is 7% and the current yield to maturity of 15%. The debenture has 8 years to maturity. (Note that the debenture is currently trading at R7 144 200 · They also have a bank overdraft of R8 000 000 due in 4 years’ time and interest is charged at 12% per annum. Additional Information: Barnyard Traders has a beta of 1.2, a risk-free rate of 6.5% and a return on the market of 11.5%. Assume the company tax rate is 30%. 2.1 Calculate the weighted average cost of capital, using the Capital Asset Pricing Model to calculate the cost of equity. 2.2 Calculate the cost of equity, using the Gordon Growth Model.
Barnyard Traders uses a combination of shares and debt in their capital structure.
The details are given below:
· There are 20 million R10.80 ordinary shares in issue and the current market price is R8.50 per share. The latest dividend paid was 99 cents and 11% average growth for the past six years was maintained.
· The company has 10 500 000 R9, 8%
· Barnyard Traders has a public traded debt with a face value of R18 000 000. The coupon rate of the debenture is 7% and the current yield to maturity of 15%. The debenture has 8 years to maturity. (Note that the debenture is currently trading at R7 144 200
· They also have a bank overdraft of R8 000 000 due in 4 years’ time and interest is charged at 12% per annum.
Additional Information:
Barnyard Traders has a beta of 1.2, a risk-free rate of 6.5% and a return on the market of 11.5%.
Assume the company tax rate is 30%.
2.1 Calculate the weighted average cost of capital, using the
2.2 Calculate the cost of equity, using the
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