MAC3702 JUNE 2021 MEMO

MAY – JUNE
2021

, SOLUTION 1: WEIGHTED AVERAGE COST OF
CAPITAL, CAPITAL BUDGETING, CAPITAL
STRUCTURE, ANALYSIS OF FINANCIAL & NON
– FINANCIAL INFORMATION, WORKING
CAPITAL MANAGEMNT JIT & DISCUSSION
(a) Calculation of the weighted average cost of capital

1. Ordinary Shares

i. Market Value
500 000 000
Number of ordinary = 8
= 𝟔𝟐 𝟓𝟎𝟎 𝟎𝟎𝟎

Market Value = (62 500 000 ∗ 150)
= 𝑹𝟗 𝟑𝟕𝟓 𝟎𝟎𝟎 𝟎𝟎𝟎

ii. Cost of equity

(105.46−95.87
Growth rate = 95.87
= 𝟏𝟎%
1.0546 ∗ 1.1
Cost of equity = (150 ∗ 97%) + 0.1
= 𝟏𝟎. 𝟖%

2. Preference Shares

i. Cost of Capital = 𝟏𝟏. 𝟔𝟕%

ii. Market Value

Present value of interest and principal

𝐹𝑉 = 120 000 000
𝑃𝑀𝑇 = (120 000 000 ∗ 14%) = 16 800 000
𝑛=4
𝑖 = 11.67
𝑷𝑽 = 𝑹𝟏𝟐𝟖 𝟓𝟓𝟏 𝟕𝟗𝟐