MAC2602 ASSIGNMENT 2 SEMESTER 1 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 = 𝑻𝒐𝒕𝒂𝒍 𝑴𝒂𝒓𝒌𝒆𝒕 𝑽𝒂𝒍𝒖𝒆 ∗ 𝟏𝟎𝟎

2 430 000
= 24 500 000 ∗ 100

= 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%