Calculate and determine whether the expected return

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Reference no: EM133560778

Case Study - YESPAK Ltd vs Nampak Ltd YESPAK Ltd is Africa's second biggest diversified packaging manufacturer and has been listed on the JSE Limited (Johannesburg Stock Exchange) since 1975. Despite difficult trading conditions over the last few years, the company's performance has been satisfactory, and the directors are now considering expanding one of the major product lines. The estimated capital cost of this expansion is R 10 million. As the company's team of associates that support the financial manager, you have been requested by the board of directors to determine the company's current market value, review its capital structure, and recommend how the proposed expansion should be financed. Furthermore, through competitor analysis, the board of directors wants to know how Nampak Ltd has managed its capital structure and associated risks over the last few years to improve its shareholder value creation. To perform this task, you gather the following data: 1. Estimated annual returns on YESPAK Ltd's ordinary shares under different economic scenarios are: State of the economy Probability of state occurring Return on YESPAK Ltd's shares Strong 0,15 25% Moderate 0,60 15% Weak 0,25 5% 2. The current market price of YESPAK Ltd's nine million issued ordinary shares is R 4,50, and a dividend of R 0,25 has just been declared. Taking account of past performance and future expectations, it is anticipated that a constant dividend growth rate of 8% is realistic.

Apply the accounting and financial management principles and tools covered during this module to address the board of directors' requests. Submit a detailed report addressed to the board of directors of YESPAK Ltd, where you address their requested tasks below

Question 1. Calculate and determine whether the expected return aligns with what YESPAK Ltd's ordinary shareholders require. You are also required to calculate YESPAK Ltd's standard deviation.

Question 2. Calculate YESPAK Ltd's target weighted average cost of capital.

Question 3. Calculate YESPAK Ltd's total current market value and capacity in rands for raising ordinary share capital and/or preference share capital and/or debt to fund the proposed R 10 million expansion of its product line.

Question 4. Based on your calculations in task 3, recommend how the capital should be raised.

Reference no: EM133560778

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