Calculate the weighted average cost of capital

Assignment Help Business Management
Reference no: EM133019156

Ayoba Limited uses a combination of shares and debt in their capital structure. There are 4 million R1 ordinary shares in issue and the current market price is R4.20 per share. The latest dividend paid was 65 cents and a 11% average growth for the past six years was maintained. The company has 1 500 000 R2, 8% preference shares with a market price of R1.80 per share. The company has 1 500 000 R2, 8% preference shares with a market price of R1.80 per share. Ayoba Limited has a public traded debt with a face value of R3.2 million. The coupon rate of the debenture is 11% and the current yield to maturity of 14%. The debenture has 6 years to maturity. They also have a bank overdraft of R1.2 million due in 3 years' time and interest is charged at 15% per annum.

Additional Information

  • Ayoba Limited has a beta of 2, a risk-free rate of 8% and a return on the market of 17%.
  • Company tax rate is 30%.

Required

1. Calculate the weighted average cost of capital, using the Gordon Growth Model to calculate the cost of equity.

2. Calculate the cost of equity, using the Capital Asset Pricing Model.

Reference no: EM133019156

Questions Cloud

Prepare the entry to record the adjusting entry at December : Prepare the entry to record the adjusting entry at December 31, 2021, to record the revenue to be recognized in December 2021
Calculate the weighted average cost of capital : The company has a target D / E of 1.9, a risk premium for the cost of equity of 5%. Calculate the weighted average cost of capital
Strategic elements of product development : QUESTION ONE"The strategic elements of product development provide a framework to guide management through product development and help them focus on what is im
How many reserves in total did the commercial bank need : Assume that MCB Bank gives a loan to a customer at an amount of RS 175,000. How many reserves in total did the commercial bank need for this loan
Calculate the weighted average cost of capital : Ayoba Limited uses a combination of shares and debt in their capital structure. There are 4 million R1 ordinary shares in issue and the current market price is
After-tax cash flows and the net present value of cash : 1. What is the after-tax cash flows and the net present value of the cash outflows under each alternative?
What is the price earnings ratio of the company : -What is the price earnings ratio (PE) of the company, given total number of outstanding ordinary shares is 57,000 and market price of each share is $22
What amount should be reported as the gain : On the company's December 31, year 4 income statement, what amount should be reported as the gain on reversal of impairment loss
Explain the importance of confirming : Explain the importance of confirming the following for text that have been produced from recorded notes

Reviews

Write a Review

Business Management Questions & Answers

  Caselet on michael porter’s value chain management

The assignment in management is a two part assignment dealing 1.Theory of function of management. 2. Operations and Controlling.

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. Due to increase in the preference for light beer drinkers, Chris Prangel wants to introduce light beer version in Mountain Man. An analysis into the la..

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. An analysis into the launch of Mountain Man Light over the present Mountain Man Lager.

  Analysis of the case using the doing ethics technique

Analysis of the case using the Doing Ethics Technique (DET). Analysis of the ethical issue(s) from the perspective of an ICT professional, using the ACS Code of  Conduct and properly relating clauses from the ACS Code of Conduct to the ethical issue.

  Affiliations and partnerships

Affiliations and partnerships are frequently used to reach a larger local audience? Which options stand to avail for the Hotel manager and what problems do these pose.

  Innovation-friendly regulations

What influence (if any) can organizations exercise to encourage ‘innovation-friendly' regulations?

  Effect of regional and corporate cultural issues

Present your findings as a group powerpoint with an audio file. In addition individually write up your own conclusions as to the effects of regional cultural issues on the corporate organisational culture of this multinational company as it conducts ..

  Structure of business plan

This assignment shows a structure of business plan. The task is to write a business plane about a Diet Shop.

  Identify the purposes of different types of organisations

Identify the purposes of different types of organisations.

  Entrepreneur case study for analysis

Entrepreneur Case Study for Analysis. Analyze Robin Wolaner's suitability to be an entrepreneur

  Forecasting and business analysis

This problem requires you to apply your cross-sectional analysis skills to a real cross-sectional data set with the goal of answering a specific research question.

  Educational instructional leadership

Prepare a major handout on the key principles of instructional leadership

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd