Calculate the cost of equity capital-cost of debt capital

Assignment Help Financial Management

Reference no: EM131622946

Santam wants to determine its cost of capital. The company is financed through bonds and ordinary shares. The bonds were issued five years ago at a par value of R100 (total funds raised R5 million). They carry an annual coupon of 12 per cent, are due to be redeemed in four years and are currently trading at R110. The company’s shares have a market value of R4 million, the return on risk-free government securities is 9 per cent and the risk premium for an average-risk share has been 6 per cent. Santam’s shares have a lower than average risk and its historic beta, as measured by the co-movement of its shares and the market index, correctly reflects the risk adjustment necessary to the average risk premium – this is 0.90. The corporate tax rate is 30 per cent. Santam has a net asset figure of R3.5 million showing in its statement of financial position.

Required:

1 Calculate the cost of debt capital.

2 Calculate the cost of equity capital.

3 Calculate the weighted average cost of capital.

4 Should Santam use the WACC for all future projects and SBUs? Explain your answer.

Reference no: EM131622946

Questions Cloud

Explain the concepts of setup time and utilization time : Explain the concepts of setup time, utilization time, and bottlenecks in a simple manufacturing process and what the role of the operations manager is.

The effectiveness of the talent management strategy : Develop a five (5) point criteria for evaluating the effectiveness of the talent management strategy and how the data could be collected.

How much is paid at the end of two years for a loan : How much is paid at the end of two years for a loan of $8,000 if the total interest is $660?

Topic - multi-scale modeling of wet granulation process : Write the report on given Topic - Multi-scale modeling of wet granulation process. erive the granule characteristics including moisture content

Calculate the cost of equity capital-cost of debt capital : Calculate the cost of equity capital. Calculate the weighted average cost of capital.

Discuss we are not selling ramen here : Haru had met Omuya while both were in the U.S. military in Iraq. SPAM wants to uphold its super prestigious reputation and image

Should she call her payroll office for a correction : Shameka Jones earns $107,820 and is paid semimonthly. Her last pay stub for the year shows $278.54 is deducted for Social Security and $65.14 is deducted.

Define the definition and elements of each and remedies : Tahmina is an engineer who has left her job as a designer at Acme Tech to start-up her own business selling fidget spinners

What is the purpose of sampling : What is the purpose of sampling? What are the fundaments of sampling? How can you avoid bias when selecting samples for human services research?

User Account

All Pages