Barnyard Traders uses a combination of shares and debt in their capital structure. The details are given below: There are 20 million R10.80 ordinary shares in issue and the current market price is R8.50 per share. The latest dividend paid was 99 cents and 11% average growth for the past six years was maintained. The company has 10 500 000 R9, 8% preference shares with a market price of R8.80 per share. Barnyard Traders has a public traded debt with a face value of R18 000 000. The coupon rate of the debenture is 7% and the current yield to maturity of 15%. The debenture has 8 years to maturity. They also have a bank overdraft of R8 000 000 due in 4 years’ time and interest is charged at 12% per annum. Additional Information: · Barnyard Traders has a beta of 1.2, a risk-free rate of 6.5% and a return on the market of 11.5%. · Company tax rate is 30%. Required: Calculate the weighted average cost of capital, using the Capital Asset Pricing Model to calculate the cost of equity
Barnyard Traders uses a combination of shares and debt in their capital structure.
The details are given below:
There are 20 million R10.80 ordinary shares in issue and the current market price is R8.50 per share. The latest dividend
paid was 99 cents and 11% average growth for the past six years was maintained.
The company has 10 500 000 R9, 8%
Barnyard Traders has a public traded debt with a face value of R18 000 000. The coupon rate of the debenture is 7% and
the current yield to maturity of 15%. The debenture has 8 years to maturity.
They also have a bank overdraft of R8 000 000 due in 4 years’ time and interest is charged at 12% per annum.
Additional Information:
· Barnyard Traders has a beta of 1.2, a risk-free rate of 6.5% and a return on the market of 11.5%.
· Company tax rate is 30%.
Required:
Calculate the weighted average cost of capital, using the
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