MAC2602 JUNE 2017 MEMO

Question 1
Question Solution
1.1 b
1.2 a
1.3 b
1.4 a
1.5 d

, Question 2
Part a
Ke=Rf+B(Rm-Rf)
=0,09+1,1(0,18-0,09)
=0,189/18,9%

Part b
Market value of
debentures 1*{1-(1/1+i)n/i}+(R/1+i)n
i=13%
I=1 080 000
R=9 000 000(10 000 shares*R900
N=5

Calculation
1 080 000*{1-(1/1+0,13)5/0,13}+(9 000 000/1+0,13)5
8,683,456
Part c
Kd=i(1-t)
=9,36%

Part d
Weighted average cost of capital
Type of debt/equity Total amount % Portion Interest rate Weighting
Ordinary shares 11,000,000.00 40% 18.90% 0.0763
Debentures ( see part b) 8,683,456.00 32% 9.36% 0.0298
Long term loan 7,550,000.00 28% 11.00% 0.0305
Total 27,233,456.00 0.1367

Therefore WACC is 13,67%



Part e
Total Equity
Ordinary shares 11,000,000.00
Retained earnings 5,300,000.00
Undistributable reserves 910,000.00
Total 17,210,000.00

Total debt
Debentures 8,683,456.00
Long term loan 7,550,000.00
Total 16,233,456.00

Total debt and equity 33,443,456.00