FIN3701 ASSIGNMENT 2 SEMESTER 2 2025 *COMPLETE ANSWERS* DUE DATE 18 SEPTEMBER 2025 (BEST ANSWERS FOR THIS ASSIGNMENT)

, FIN3701 ASSIGNMENT 2 SEMESTER 2 2025 ANSWERS
DUE DATE: 18 SEPTEMBER 2025


QUESTION 1

MathethePharm Ltd

1.1 Weighted Average Cost of Capital (WACC) per Financing Range

Cost of Debt (Debenture)

• Par value = R1 000

• Coupon = 8% → R80/year

• Issue price = R1 000 – 5% discount = R950

• Flotation costs = R20 per debenture

• Net proceeds = 950 – 20 = R930

• Before-tax cost of debt = 80 ÷ 930 = 8.60%

• After-tax cost of debt = 8.60% × (1 – 0.30) = 6.02%

Cost of Bank Loan

• After-tax cost = 10%

Cost of Equity (Retained Earnings)

• Dividend = R10

• Growth rate = 3%

• Price = R90

• Cost = (10 ÷ 90) + 0.03 = 0.1111 + 0.03 = 14.11%

Cost of New Equity (New Shares)

• Net proceeds after flotation = R87.30

• Cost = (10 ÷ 87.30) + 0.03 = 0.1145 + 0.03 = 14.45%

Break-Points Calculation

• Debt break-point = R160 000 ÷ 0.40 = R400 000