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Weighted Average Cost of Capital

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Please assist with the attached question.

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The directors of Jasmin Limited are considering opening a factory to manufacture a new product. Detailed forecasts of the product's expected cash flows have been made, and it is estimated that an initial capital investment of R2.5 million is required.

The company's current authorised share capital consists of 4 million ordinary shares, each with a nominal value of 25 cents. During the last six years the number of shares in issue has remained constant at 3 million, and the market price per share is 135 cents. The current dividend is 13.6 cents and the expected growth is 10%.

Jasmin Limited currently has in issue 800 000 8 % debentures, redeemable in four years' time. The current yield-to-maturity is 11%.

The company also has outstanding a R900 000 bank loan repayable in five years' time. The rate of interest on this loan is variable, being fixed at 1.5 % above the bank's base rate which is currently 15%. The company's tax rate is 30 %.

Required:
Calculate the weighted average cost of capital (WACC) for Jasmin Limited.

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Question 2: Weighted Average Cost of Capital (20)
The directors of Jasmin Limited are considering opening a factory to manufacture a new product. Detailed forecasts of the product's expected cash flows have been made, and it is estimated that an initial capital investment of R2.5 million is required.

The company's current authorised share capital consists of 4 million ordinary shares, each with a nominal value of 25 cents. During the last six years the number of shares in issue has remained constant at 3 million, and the market price per share is 135 cents. The current dividend is 13.6 cents and the expected growth is 10%.

Jasmin Limited currently has in issue 800 000 8 % debentures, redeemable in four years' ...

Solution Summary

The solution explains how to calculate the Weighted Average Cost of Capital

$2.19