MAC3702 Assignment 2 Semester 2
2017 - SUGGESTED WORKINGS
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MAC3702
Assignment 2 Semester 2 2017 (suggested workings & guidelines)
Unique Number: 750050
Disclaimer (Please read carefully)
The information presented here have been prepared by specialist who are fully qualified and possess
extensive understanding of this module. Prescribed study material have been used to compile the
information presented here, and an external party was used to review the work presented below. All
workings are shown. However, CTM Tutoring solution Pty Ltd will not be held liable for any loss or damage
as a result of information presented in this document. Users should always verify the information
presented here. CTM Tutoring solution Pty Ltd does not guarantee any outcome from the use of
information presented in this document. Purchase will at own risk.
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1. QUESTION I
WACC BASED ON TARGET CAPITAL STRUCTURE
Target weights
Equity 70%
Debt 30%
Cost of Capital Components
DEBT CAPITAL
Consists of Debentures and the long term loan
Cost of debentures = 0.08(1-0.28) = 0.0576
Cost of long term loan = 542 400/6 007 924 (1 -0.28) = 0.065002
The question states the following;
Under the target debt, debentures should be double the sum of other interest-bearing
instruments
This means weight of debentures is 66% while long term loan is 33%
Therefore cost of Total debt capital = 66%( 0.0576) + 33%(0.065002) = 0.05946666
EQUITY CAPITAL
D1 = 15 000 000 given in the question
Po = 180 000 000 also given
Sustainable Growth rate (according to item c) = 21 600 000/20 000 000 – 1 = 0.08
Cost of equity = D1/Po + g = 15 000 000/180 000 000 + 0.08 = 0.163333333
Weighted Average Cost of Capital Calculation
WACC = We.Ke + Wd.Kd(1-T)
= (70%*0.163333)+(30%*0.05946666)
= 0.132173098 = 13.22%
© 2017 CTM Tutoring All rights reserved
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2017 - SUGGESTED WORKINGS
written by
ctm.tutoring
The study-notes marketplace
Buy and sell all your summaries, notes, theses, essays, papers, cases, manuals, researches, and
many more...
www.stuvia.co.za
Downloaded by: Zaheer |
Distribution of this document is illegal
, Stuvia.com - The study-notes marketplace
MAC3702
Assignment 2 Semester 2 2017 (suggested workings & guidelines)
Unique Number: 750050
Disclaimer (Please read carefully)
The information presented here have been prepared by specialist who are fully qualified and possess
extensive understanding of this module. Prescribed study material have been used to compile the
information presented here, and an external party was used to review the work presented below. All
workings are shown. However, CTM Tutoring solution Pty Ltd will not be held liable for any loss or damage
as a result of information presented in this document. Users should always verify the information
presented here. CTM Tutoring solution Pty Ltd does not guarantee any outcome from the use of
information presented in this document. Purchase will at own risk.
Downloaded by: Zaheer |
Distribution of this document is illegal
, Stuvia.com - The study-notes marketplace
1. QUESTION I
WACC BASED ON TARGET CAPITAL STRUCTURE
Target weights
Equity 70%
Debt 30%
Cost of Capital Components
DEBT CAPITAL
Consists of Debentures and the long term loan
Cost of debentures = 0.08(1-0.28) = 0.0576
Cost of long term loan = 542 400/6 007 924 (1 -0.28) = 0.065002
The question states the following;
Under the target debt, debentures should be double the sum of other interest-bearing
instruments
This means weight of debentures is 66% while long term loan is 33%
Therefore cost of Total debt capital = 66%( 0.0576) + 33%(0.065002) = 0.05946666
EQUITY CAPITAL
D1 = 15 000 000 given in the question
Po = 180 000 000 also given
Sustainable Growth rate (according to item c) = 21 600 000/20 000 000 – 1 = 0.08
Cost of equity = D1/Po + g = 15 000 000/180 000 000 + 0.08 = 0.163333333
Weighted Average Cost of Capital Calculation
WACC = We.Ke + Wd.Kd(1-T)
= (70%*0.163333)+(30%*0.05946666)
= 0.132173098 = 13.22%
© 2017 CTM Tutoring All rights reserved
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