The present capital sructure is as follows :
1.800,000 R2 ordinary shares now trading at r2,50 per sharepreference
2. 250,000 preference shares trading at r2 per share (isuued atR3 per share).10% fixed rate of interest.
3.Abank loan of R1 500,000 AT 13% p.a (payable over 5 years.
Additional data: the company's beta is 1.3. The return on themarket is 14% and the risk fee rate is 7%.
its current tax rate is 28&. its current divided is 40c pershare and it expects its dividends to grow by 8%.
You are required to : Assuming that the company uses theSividend growth model to calculate its cost of equity. Calculateits weighted average cost of capital.
If a further R500,000 is needed to finance te expansion ,whichoption should they use from eitherr ordinary shares, preferenceshare or loan financing and why?
Please help with the calculations and explain
