You have been appointed as a financial consultant by the directors of Mario 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: 5 500 000 Ordinary shares, with a market price of R3 per share. The beta of the company is 1.6, a riskfree rate of 8.2% and the return on the market is 18%. There are One million 12%, R1 Preference shares with a market value of R2 per share. In addition, R2 200 000 8%, Debentures due in 8 years and the current yield-to-maturity is 11% and R5 000 000 13% Bank loan, due in December 2027. Additional information:  The company has a tax rate of 30%.  The latest dividend declared was 90 cents per share. A dividend growth of 13% was maintained for the past 5 years. Required: 1.1 Calculate the weighted average cost of capital (WACC). Use the Capital Asset Pricing Model to calculate the cost of equity. 1.2 Calculate the cost of equity, using the Gordon Growth Model.

You have been appointed as a financial consultant by the directors of Mario 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: 5 500 000 Ordinary shares, with a market price of R3 per share. The beta of the company is 1.6, a riskfree rate of 8.2% and the return on the market is 18%. There are One million 12%, R1 Preference shares with a market value of R2 per share. In addition, R2 200 000 8%, Debentures due in 8 years and the current yield-to-maturity is 11% and R5 000 000 13% Bank loan, due in December 2027. Additional information:  The company has a tax rate of 30%.  The latest dividend declared was 90 cents per share. A dividend growth of 13% was maintained for the past 5 years. Required: 1.1 Calculate the weighted average cost of capital (WACC). Use the Capital Asset Pricing Model to calculate the cost of equity. 1.2 Calculate the cost of equity, using the Gordon Growth Model.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

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you have appointed as a finacial consaltant by the directors of mario 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. 5 500 000 ordinary shares, with a market price of R3 per share. the beta of the company is 1.6, a risk free rate of 8.2% and the return on the market is 18%. there are one million 12%, R1 preference shares with a market value of R2per share. in addition, R2 200 000 8%, Debentures due in 8 years and the current yield-to-maturity is 11% and R5000 000 13% bank loan, due in December 2027. additinal information the vompany has a tax rate of 30%. the latest divided declared was 90 cents per share. a divided growth of 13% was maintained for the past 5 years. required. 1.1 calculate the weited average cost of capital (WACC). Use the capital asset pricing model. 1.2 calculate the cost of equity, using the gordon growth model.
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4. You are a member of the finance staff of Orange Ltd, whose share are listed on London Stock Exchange. You have been asked to derive a weighted average cost of capital (WACC) for use in assessing a major investment in a training facility. The business’s financial statement as at 31 December 2021 shows that it has the following long-term financial capital structure: Redeemable Debt: 5,000 redeemable debts of £100 each with 12% coupon rate Preference Shares: 46,000 shares with 9% dividend rate and a par value of £10 Ordinary shares: 0.5 million shares of £1 each On 31 December 2021, the 12% redeemable debt is traded at £114 (ex-interest). It will be redeemable at par on 31 December 2022. Interest on the debt is payable annually on 31 December. On 31 December 2021, the market price of the company’s 9% preference shares is £13.5 (cum-dividend). On 31 December 2021, the ordinary shares are quoted at £1.21 each. The ordinary shareholders will receive a 7p annual dividend per share very…
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The Turnip Company plans to issue preferred stock. Currently the company stock sells for $110. Once new stock is issued the turnip company would receive only $90. The dividend rate is 8% and the per value of the stock is $100. Compute the cost of capital of the stock to your firm. Show all work.
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%. 2.1 Calculate the weighted average cost of capital. Use the Gordon Growth Model to calculate the cost of equity. 2.2 Calculate the cost of equity, using the Capital Asset Pricing Model.
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A company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: (1) rd = yield on the firm’s bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.50. (3) D1 = $1.20, P0 = $35.00, and g = 8.00% (constant). You were asked to estimate the cost of equity based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference? Group of answer choices 2.61% 2.67% 3.54% 3.00% 3.72%
Q2. Suppose you are the chief financial officer of Toktik Co. and you are trying to determine the optimal capital structure for the company using the cost of capital approach. On the day of this exam, you have collected the following company and market data: The beta of the company is 2.6; • 10-year Treasury bond rate is 1.6% and the current market equity risk premium is 6.9%; • The company's current bond rating is BB by Standard & Poor's; • The firm currently has 5.2 billion shares outstanding with share price at $120 and the firm's market value of debt is $264 billion • The company's marginal tax rate is 35%. Also you are given the following table concerning the latest information on bond rating and the corresponding default spread: Default spread Rating AAA 0.69% AA 0.85% A+ 1.07% A 1.18% А- 1.33% BBB 1.71% BB+ 2.31% BB 2.77% B+ 4.05% 4.86% В- 5.94% ССС 9.46% CC 9.97% 13.09% D 17.44% Required: a) Briefly explain, by referencing relevant capital structure theories, the mechanisms…