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  3. question 3 kea (pty) ltd. has the following

Question 3 Kea (Pty) Ltd. has the following capital...

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Finance

Question 3
Kea (Pty) Ltd. has the following capital structure as of 28 February 2022:
ZAR
Debentures @10% interest p.a.7.2 million
Preference shares @9% dividend 4.8 million
600,000 ordinary shares of R 10 each 6 million
The ordinary shares of the company are quoted at R10 and the company is expected to declare a dividend of R0.90 per share for 2022. The company has registered a dividend growth rate of 5% which is expected to be maintained. The tax rate applicable to the company is 27%.
Calculate:
The weighted average cost of capital. (13 Marks)
The revised weighted average cost of capital, if the company raises an additional term loan of R6 million at 12% interest p.a. for expansion. In such a situation the company can increase the dividend from R0.9 to R1 per share but the market price of the share would go down to R9.(12 Marks)

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