Market price of the share would go down to r9

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Question: Alto (Pty) Ltd. has the following capital structure as of 28 February 2022: ZAR Debentures @10% interest p.a. 6 million Preference shares @9% dividend 4 million 500,000 ordinary shares of R 10 each 5 million The ordinary shares of the company are quoted at R10 and the company is expected to declare a dividend of R0.90 per share for 2022. The company has registered a dividend growth rate of 5% which is expected to be maintained. The tax rate applicable to the company is 27%. Calculate: The weighted average cost of capital. (13 Marks) The revised weighted average cost of capital, if the company raises an additional term loan of R5 million at 12% interest p.a. for expansion. In such a situation the company can increase the dividend from R0.9 to R1 per share but the market price of the share would go down to R9.

Reference no: EM133611958

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