Cost of Equity, Preference Shares, Cost of Capital Revisions, Cost of Debt and Debenture

Finance

TABLE OF CONTENTS
Question 1........................................................................................................................................3
Question 2........................................................................................................................................3
Question 3........................................................................................................................................4
Question 4........................................................................................................................................4
Part A...........................................................................................................................................4
Part B...........................................................................................................................................4
References........................................................................................................................................6

QUESTION 1
Cost of Ordinary Shares as per the Dividend Growth Model:
Ke=(D 1/ P 0)+G
D1: Expected Future Dividend at Time (1 period later)
P0: Ex-Dividend Equity Value today
Ke: Cost of Equity per period
G: Constthe ant periodic rate of Growth in dividend from Time 1 to infinity
D0: Dividend paid ((Vernimmen et.al, 2014))
Therefore D1: D0 * (1+Growth Rate)
=1.60 * (1+.02)
=1.632
Ke= (1.632/11.66)*100 + 2%
= 13.99 + 2
= 15.99%
QUESTION 2
Cost of Preference Shares:
¿
= 12 / 80 * (1 - .05)*100
= 12 / 76*100
= 15.78%