FIN3701
ASIGNMENT 02 SUGGESTED SOLUTION
SEMESTER 1 2022
, QUESTION 1
1.1 Calculate the cost of retained earnings, new ordinary shares, preference shares and long-
term debt of Blue Valley Ltd. Also indicate the maximum investment that the company can
make with the new project before it must issue new ordinary shares (break point of ordinary
shares).
Cost of retained earnings
R2.35 x (1+0.08) + 0.08 = 12.61%
𝑅55
Cost of new issue of equity
R2.35 𝑥 (1+0.08) + 0.08 = 13.90%
𝑅55 -12
Preference shares
R3 = 13.95%
R23 -1.50