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The directors of Ideya Limited have appointed you as their financial consultant to calculate the cost of
capital for the company.
The present capital structure is as follows:
Two million ordinary shares with a par value of 75 cents per share. These shares are currently
trading at R4.50 per share and the latest dividend paid is 30 cents. An average dividend growth
of 13% is maintained.
One and a half million 14% R3.00 preference shares, with a market value of R5.00 per share.
R2 000 000 non-distributable reserves.
R800 000 8% debentures due in 6 years’ time and the current yield-to-maturity is 6%, and
R900 000 13% bank loan.
Additional information:
The company has a beta of 1.7, a risk-free rate of 5% and enjoys a premium of 8%.
The company's tax rate is 30%.
Required:

Calculate the weighted average cost of capital, using the Gordon Growth Model to calculate the cost of equity.

Sagot :

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