FIN3701
ASSIGNMENT 2 (SEMESTER 2)
DUE DATE: 14 September 2023
QUESTION 1
REQUIRED:
1.1 Calculate the WACC associated with each range of financing/break-point. (18 marks)
ANSWER:
To calculate the Weighted Average Cost of Capital (WACC) associated with each range of financing/break-
point, we'll need to consider both the cost of debt and the cost of equity for each financing option. We'll
also calculate the weighted average cost based on the optimal capital structure weights of 40% debt and
60% equity.
Calculations of the WACC for each financing option:
1. Debt Financing:
• Debt Amount (D) = R150,000
• Cost of Debt (Kd) = [(Annual Coupon Rate * (1 - Tax Rate)) + (Flotation Cost / (Par Value - Discount))]
/ (1 - Flotation Cost)
• Kd = [(0.08 * (1 - 0.30)) + (20 / (1000 - 50))] / (1 - 0.03)
• Kd = [0.056 + ()] / 0.97
Terms of Utilisation:
1. • Educational
Kd ≈ and [0.056 + You
Reference: 0.02105] / 0.97for educational, reference, and comparison purposes.
may use this document
2. No Duplication or Misrepresentation: You are not allowed to duplicate or misrepresent this document's content as your own work.
• Kd ≈ 0..97
3. Accept Consequences: If you misuse or plagiarize this document, you accept responsibility for any resulting consequences.
• Kd ≈ 0.0794 or 7.94%
Your use of this document signifies your agreement to these terms. Failure to comply may lead to legal action or other appropriate measures.
ASSIGNMENT 2 (SEMESTER 2)
DUE DATE: 14 September 2023
QUESTION 1
REQUIRED:
1.1 Calculate the WACC associated with each range of financing/break-point. (18 marks)
ANSWER:
To calculate the Weighted Average Cost of Capital (WACC) associated with each range of financing/break-
point, we'll need to consider both the cost of debt and the cost of equity for each financing option. We'll
also calculate the weighted average cost based on the optimal capital structure weights of 40% debt and
60% equity.
Calculations of the WACC for each financing option:
1. Debt Financing:
• Debt Amount (D) = R150,000
• Cost of Debt (Kd) = [(Annual Coupon Rate * (1 - Tax Rate)) + (Flotation Cost / (Par Value - Discount))]
/ (1 - Flotation Cost)
• Kd = [(0.08 * (1 - 0.30)) + (20 / (1000 - 50))] / (1 - 0.03)
• Kd = [0.056 + ()] / 0.97
Terms of Utilisation:
1. • Educational
Kd ≈ and [0.056 + You
Reference: 0.02105] / 0.97for educational, reference, and comparison purposes.
may use this document
2. No Duplication or Misrepresentation: You are not allowed to duplicate or misrepresent this document's content as your own work.
• Kd ≈ 0..97
3. Accept Consequences: If you misuse or plagiarize this document, you accept responsibility for any resulting consequences.
• Kd ≈ 0.0794 or 7.94%
Your use of this document signifies your agreement to these terms. Failure to comply may lead to legal action or other appropriate measures.
