Answer to Question #321586 in Financial Math for Avis

Question

The present capital structure is as follows;

2 000 000 ordinary shares with a par value of R1.00 per share. These shares are

currently trading at R2.50 per share and the latest dividend paid is 40 cents. An

average dividend growth of 9% is maintained.

1 500 000 8% R2.00 preference shares, with a market value of R1.80 per shareR10 000 000 non- distributable reserves R2 000 000 7% debentures due in 6 years time and the current yield to maturity is

10%, and R1 000 000 15% bank loan.

Additional information:

The company has a beta of 2.1 a risk free rate of 7% and a return of market of 16%.

The company tax rate is 30%.

Required

3.1Calculate the adjusted weighted average cost of capital using capital asset pricing model as the cost of equity.(13 marks)

Answer 1

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