FIN3701 Assignment
1 (COMPLETE
ANSWERS)
Semester 2 2025 -
DUE 21 August 2025
FOR MORE INFORMATION AND ASSISTANCE CONTACT:
100% TRUSTED WORKINGS, EXPLANATIONS & SOLUTIONS
, FIN3701 Assignment 1 (COMPLETE
ANSWERS) Semester 2 2025 - DUE 21
August 2025
Jojo Resources is seeking to invest R10 million in a new
mining project to expand its gold production capacity. The
management of the company prefers to maintain the
present 35% debt, 55% equity and 10% preference
shares capital structure. Debt financing can be obtained
by issuing a 5-year R1,000 bond. The current price of the
bond is R1 200 and it pays 10% coupons. Jojo Resources
has a beta of 1.3. The expected return on the market
portfolio is 16% and the current risk-free rate is 8%. The
company is contemplating issuing 10% preference
shares, which are expected to sell for a par value of R60
per share. The cost of issuing and selling the shares is
expected to be 5%. The tax rate is 29%. REQUIRED:
Got it 👍. This is a Weighted Average Cost of Capital (WACC) type of problem.
Let’s carefully work through it step by step.
Step 1: Cost of Debt (after tax)
Bond details:
Face value = R1,000
Market price = R1,200
Coupon = 10% of 1,000 = R100 annually
Maturity = 5 years
We need Yield to Maturity (YTM) since the bond sells above par.
The approximate YTM formula:
𝑌 𝑇 𝑀 ≈ 𝐶 + 𝐹 − 𝑃 𝑛 𝐹 + 𝑃 2 YTM≈ 2 F+P
C+ n F−P
1 (COMPLETE
ANSWERS)
Semester 2 2025 -
DUE 21 August 2025
FOR MORE INFORMATION AND ASSISTANCE CONTACT:
100% TRUSTED WORKINGS, EXPLANATIONS & SOLUTIONS
, FIN3701 Assignment 1 (COMPLETE
ANSWERS) Semester 2 2025 - DUE 21
August 2025
Jojo Resources is seeking to invest R10 million in a new
mining project to expand its gold production capacity. The
management of the company prefers to maintain the
present 35% debt, 55% equity and 10% preference
shares capital structure. Debt financing can be obtained
by issuing a 5-year R1,000 bond. The current price of the
bond is R1 200 and it pays 10% coupons. Jojo Resources
has a beta of 1.3. The expected return on the market
portfolio is 16% and the current risk-free rate is 8%. The
company is contemplating issuing 10% preference
shares, which are expected to sell for a par value of R60
per share. The cost of issuing and selling the shares is
expected to be 5%. The tax rate is 29%. REQUIRED:
Got it 👍. This is a Weighted Average Cost of Capital (WACC) type of problem.
Let’s carefully work through it step by step.
Step 1: Cost of Debt (after tax)
Bond details:
Face value = R1,000
Market price = R1,200
Coupon = 10% of 1,000 = R100 annually
Maturity = 5 years
We need Yield to Maturity (YTM) since the bond sells above par.
The approximate YTM formula:
𝑌 𝑇 𝑀 ≈ 𝐶 + 𝐹 − 𝑃 𝑛 𝐹 + 𝑃 2 YTM≈ 2 F+P
C+ n F−P
