Martins Grobbler is a courier services company. The company needs to replace a few of its old vehiclesto improve service and reduce costs. As a financial consultant, you are appointed to calculate the costof capital.The following information is presented to you in respect to the company’s cost structure:6 million $1 ordinary shares, currently trading at $4 per share.4 million 12% $2 preference shares, currently trading at $3 per share.$2 million, 14% debentures, with a current yield – to – maturity of 11%, due in 6 years.Bank loan: $1 600 000 at 16% interest rate per annum, maturing in 7 years.Additional information:The company has a beta factor of 1.5 and a risk free rate of 6%.Its tax rate is 30% and the return on market is 15%.The current dividend paid on the ordinary shares is 80 cents per share and a growth rate of 13% ismaintained.Calculate the weighted average cost of capital, using the Capital Asset Pricing Model tocalculate the cost of equity.
Martins Grobbler is a courier services company. The company needs to replace a few of its old vehicles
to improve service and reduce costs. As a financial consultant, you are appointed to calculate the cost
of capital.
The following information is presented to you in respect to the company’s cost structure:
6 million $1 ordinary shares, currently trading at $4 per share.
4 million 12% $2
$2 million, 14% debentures, with a current yield – to – maturity of 11%, due in 6 years.
Bank loan: $1 600 000 at 16% interest rate per annum, maturing in 7 years.
Additional information:
The company has a beta factor of 1.5 and a risk free rate of 6%.
Its tax rate is 30% and the return on market is 15%.
The current dividend paid on the ordinary shares is 80 cents per share and a growth rate of 13% is
maintained.
Calculate the weighted average cost of capital, using the
calculate the
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