Carefully read the below case and answer the questions that follow: Ocean Gate Ltd imports...
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Carefully read the below case and answer the questions that follow: Ocean Gate Ltd imports inexpensive flour from Zimbabwe to sell at reasonable prices in their various outlets across South Africa. It has more than 100 outlets nationwide. Ocean Gate Ltd is always looking for ways to expand and increase its market share. The following information relates to the capital structure of Ocean Gate Ltd: New ordinary shares The present market price of Ocean Gate Ltd.'s ordinary share is R3.17, the expected dividend (D1) is R0.20, and the expected growth rate in dividends is 7% p.a. Preference shares Ocean Gate Ltd intends to fund additional financing by issuing 9% preference shares with a par value of R40 and a dividend of R4 per share per year. Ocean Gate Ltd expects to realise R35 per share. Long-term debt Ocean Gate Ltd secured a long-term loan of R27 000 to purchase an income-producing asset at a cost of 10.5%. Ocean Gate Ltd.'s marginal tax rate is 28%. Required: 4.1) Determine the specific cost of each source of financing, namely: Ordinary shares. (4 Marks) Preference shares. (2 Marks) and Long-term debt
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