Calculate the weighted average cost of capital

Reference no: EM133558074

Monsta Traders uses a combination of shares and debt in their capital structure.

The details are given below:

• There are 6 000 000 R5 ordinary shares in issue and the current market price is R7.70 per share. The latest dividend paid was 89 cents and a 11% average growth for the past eight years was maintained.

• The company has 2 400 000 R5, 10% preference shares with a market price of R6 per share.

• Monsta Traders has a public traded debt with a face value of R7 000 000. The coupon rate of the debenture is 10% and the current yield to maturity of 13%. The debenture has 6 years to maturity.

• They also have a bank overdraft of R3 000 000 due in 3 years' time and interest is charged at 15% per annum.

Additional Information:

• Monsta Traders has a beta of 1.1, a risk-free rate of 6.6% and a return on the market of 12.2%.

• Company tax rate is 30%.

Required:

1.1 Calculate the weighted average cost of capital, using the Capital Asset Pricing Model to calculate the cost of equity.

Reference no: EM133558074

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