You have been appointed as a financial consultant by the directors of Sizonke Holdings. They require you to determine 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 R3 per share. The latest dividend declared was 85 cents per share. A dividend growth of 14% was maintained for the past 5 years.✓1 000 000 11%, R1 preference shares, with a market value of R2 per share.✓R1 000 000 9%, debentures due in 7 years and the current yield-to-maturity is 10%.✓R700 000 14%, bank loan, due in December 2019.Additional information:- The company has a tax rate of 28%.- The beta of the company is 1.6, a risk free rate of 6% and the return on the market is 15%.Required:2.1 Calculate the weighted average cost of capital. Use the Gordon Growth Model to calculate the cost of equity. (22 marks)2.2 Calculate the cost of equity, using the Capital Asset Pricing Model. (
You have been appointed as a financial consultant by the directors of Sizonke Holdings. They require you to determine 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 R3 per share. The latest dividend declared was 85 cents per share. A dividend growth of 14% was maintained for the past 5 years.
✓
1 000 000 11%, R1
✓
R1 000 000 9%, debentures due in 7 years and the current yield-to-maturity is 10%.
✓
R700 000 14%, bank loan, due in December 2019.
Additional information:
- The company has a tax rate of 28%.
- The beta of the company is 1.6, a risk free rate of 6% and the return on the market is 15%.
Required:
2.1 Calculate the weighted average cost of capital. Use the
2.2 Calculate the cost of equity, using the
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