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
You have been appointed
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%
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
Step by step
Solved in 3 steps with 2 images
