FIN3701 Assignment 2 2026 Semester 1 Due 17 April 2026

UNIVERSITY OF SOUTH AFRICA (UNISA)
College of Accounting Sciences



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ASSIGNMENT 02
Cost of Capital, Project Selection & Dividend Policy

Semester 1 – 2026



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Module Code: FIN3701

Module Name: Financial Management 3A

Assignment No.: 02

Due Date: 17 April 2026

Semester: Semester 1, 2026




Submitted in partial fulfilment of the requirements for FIN3701
at the University of South Africa.

, UNISA | FIN3701 Assignment 2 – Cost of Capital & Dividend Policy



QUESTION 1 [15 marks] – Oreatli Company

The following questions apply the weighted average cost of capital (WACC) framework to
evaluate investment opportunities and determine Oreatli Company’s dividend distribution
under a residual dividend policy (Gitman, Juchau and Flanagan, 2015:432).


1.1 Weighted Average Cost of Capital (3 marks)


The WACC represents the blended, after-tax cost of each rand of financing, weighted by
the proportion each source contributes to the total capital structure (Brigham and Houston,
2019:341).


Given information:

• Weight of equity: WE = 70% = 0.70
• Weight of debt: WD = 30% = 0.30
• Cost of retained earnings: Ke = 15%
• Pre-tax cost of debt: Kd = 12%
• Marginal tax rate: T = 28%


Step 1: Compute the after-tax cost of debt.

Because interest is tax-deductible, the effective cost of debt is reduced by the tax shield:



Kd (1 − T ) = 12% × (1 − 0.28) = 12% × 0.72 = 8.64%


Step 2: Apply the WACC formula.



WACC = (WE × Ke ) + (WD × Kd (1 − T ))




WACC = (0.70 × 15%) + (0.30 × 8.64%)




WACC = 10.500% + 2.592%



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