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What will the current cost of equity for Dedaqi Ltd be

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Reference no: EM132838862

Problem - The following information of Dedaqi (Pty) Ltd

The current market price per share on 1 June 2017 is R14,82.

A dividend of R2,40 has been declared and paid during the previous financial year, ending 31 May 2017.

It is expected that dividends will grow at a constant rate of 5% per year for the foreseeable future.

The market rate of return is 16%, the risk-free rate is 8.5% and the beta is 1.8.

The company holds R2,000 (face value) debentures which are redeemable after six years at face value.

The annual interest payment on the debentures (coupon rate) is 12%.

The current market return for similar debentures with a life of six years is 11%.

Assume the current company tax rate is 28%.

Required - What will the current cost of equity for Dedaqi (Pty) Ltd be? You have to use the capital asset pricing module (CAPM).

1) 20.00%

2) 22.00%

3) 29.50%

4) 37.30%

Reference no: EM132838862

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