MAC2602 assignment 2 semester 1 of 2022

MAC2602 ASSIGNMENT 2 – SEMESTER 1 OF
2022
QUESTION 1

(a) Total Market Value = 𝑂𝑟𝑑i𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 i𝑠𝑠𝑢𝑒𝑑 * 𝑆ℎ𝑎𝑟𝑒 𝑝𝑟i𝑐𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
= (700 000 * 35)
= 𝑅24 500 000

(b) Total market value of SAA Engineering
= 𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸q𝑢i𝑡𝑦 + 𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐷𝑒𝑏𝑡
= (24 500 000 + 2 500 000)
= 27 000 000

(c) Weighted Average Cost of Capital
𝑇𝑜𝑡𝑎𝑙 𝐷i𝑣i𝑑𝑒𝑛𝑑𝑠
Cost of equity = * 100
𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑟𝑘𝑒𝑡
𝑉𝑎𝑙𝑢𝑒

2 430 000
= * 100
24 500 000

= 9. 92%

Dividends

R
EBIT 3 600 000
Interest expense (9% * 2 500 000) (225 000)
Profit before tax 3 375 000
Income tax expense (3 375 000 * 28%) (945 000)
Net Profit 2 430 000


Cost of Debt = 𝑃𝑟𝑒 𝑡𝑎𝗑 𝐶𝑜𝑠𝑡 (1 − 𝑇𝑎𝗑 𝑅𝑎𝑡𝑒)
= 9 * (1 − 0.28)
= 6. 48%

Form of Capital Market Value Weight Cost Weighted Cost
R % % %
Ordinary Shares 24 500 000 90.74 9.92 9.00
Debt 2 500 000 9.26 6.48 0.6
27 000 000 100 WACC 9.60%



FOR ACCADEMIC NEEDS CONTACT /0651609781

, (d) Weighted average cost of capital if debt is increased to 50%

Cost of debt = 𝑃𝑟𝑒 𝑡𝑎𝗑 𝑐𝑜𝑠𝑡 * (1 − 𝑇𝑎𝗑 𝑅𝑎𝑡𝑒)
= (11.5 * 72%)
= 8. 28%

Form of Capital Weight Cost Weighted Cost
% % %
Ordinary Shares 50 17.3 8.65
Debt 50 8.28 4.14
100 WACC 12.79%



𝐷1
(e) 𝑃0 =
𝑘𝑒 − 𝑔

2 430 000
𝑃0 =
0.173

Market value of shares = 𝑅14 046 243




FOR ACCADEMIC NEEDS CONTACT /0651609781