You have been appointed financial manager of AB Ltd which is listed on the     Johannesburg Stock Exchange. You need to establish the company’s current cost of     capital and you have been provided with the following information:     Ordinary share capital     There are 240 000 shares in issue at a nominal value of R2.00 each. A dividend of     R2.06 as recently been paid and this dividend amount is expected to continue in the     foreseeable future.     17% preference shares – R120 000     The preference shares dividends for the year end 31 December 2020 have been paid.     Similar preference shares are currently trading at 15% yield to maturity.     10% bonds– R1 280 000     The market interest rate for the same class of bonds as AB Ltd, is 12% per annum.     Additional information     AB Ltd’s beta is 1.57. The return on the market is 20%. The current return on Treasury     bills is 8% per annum. The company tax rate is 28% and the company is in a tax paying     position.     Required:     Calculate the WAC

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You have been appointed financial manager of AB Ltd which is listed on the

 

 

Johannesburg Stock Exchange. You need to establish the company’s current cost of

 

 

capital and you have been provided with the following information:

 

 

Ordinary share capital

 

 

There are 240 000 shares in issue at a nominal value of R2.00 each. A dividend of

 

 

R2.06 as recently been paid and this dividend amount is expected to continue in the

 

 

foreseeable future.

 

 

17% preference shares – R120 000

 

 

The preference shares dividends for the year end 31 December 2020 have been paid.

 

 

Similar preference shares are currently trading at 15% yield to maturity.

 

 

10% bonds– R1 280 000

 

 

The market interest rate for the same class of bonds as AB Ltd, is 12% per annum.

 

 

Additional information

 

 

AB Ltd’s beta is 1.57. The return on the market is 20%. The current return on Treasury

 

 

bills is 8% per annum. The company tax rate is 28% and the company is in a tax paying

 

 

position.

 

 

Required:

 

 

Calculate the WACC

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