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Before-Tax Yield Calculation Guide

The document outlines the calculations for the Weighted Average Cost of Capital (WACC) as of June 30, 2023, detailing various sources of finance including equity, preference shares, debentures, and loans. It provides specific market values, costs of finance, and the resulting WACC rate of 18.41%. Additionally, it notes that trade payables and overdrafts are not included in the WACC calculation due to their short-term nature.

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7 views2 pages

Before-Tax Yield Calculation Guide

The document outlines the calculations for the Weighted Average Cost of Capital (WACC) as of June 30, 2023, detailing various sources of finance including equity, preference shares, debentures, and loans. It provides specific market values, costs of finance, and the resulting WACC rate of 18.41%. Additionally, it notes that trade payables and overdrafts are not included in the WACC calculation due to their short-term nature.

Uploaded by

anthonylebogo9
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Marks

1 Equity - CAPM
Ke = Rf + B(Rm-Rf)
Rf 10.50% 0.5
B 2 0.5
Rm 14.50% 0.5

Ke 18.50% 0.5 P

Equity - Dividend Growth Model


Issued Ordinary shares 12,000,000

MV(PV) = D0(1+g)/Ke-g

D0 4 0.5
g 8% 0.5
Ke 18.50% 0.5 P

MV(PV) 41.14 0.5 P

Total MV 493,714,285.71 0.5 P


2 14% Preference Shares
Nomina rate 14%
Number of shares 50,000
Nominal value 100
Premium 10%
Years 10 years
MV R85

Calculation of Market rate :


Alternative
FV -110 - 5,500,000 1
N 10 10 0.5
PMT -14 - 700,000 0.5
PV R85 4,250,000 0.5

MARKET RELATED RATE 17.74% 17.74% 0.5 P No mark if student made cost of Pref shares after tax.

3 11% Debentures
Nomina rate 11%
Number of debentures 10,000
Nominal value R100

Non-redeemable = Annuity to Perpetuity

PV = PMT/Market rate

MV = Interest amount/Market rate


Alternative
PMT R11 (R100 x 11%) 0.5
Market rate 8% 0.5

MV R137.50 1,375,000 R11 ÷ 8% 0.5

After Tax Cost of Debt 5.84% 0.5

4 ACS Loan

PV 2,500,000.00 0.5
N 180 (15*12) 1
I/Y 1.04166666666667 (12,5/12) 1
FV 0

Comp PMT R30,813.05 0.5 P

Balance @ 31 December 2023 2,370,661.00 1P


P1-24
P2-24

After tax cost 9.125 0.5

5 Trade and other payables


Not a source of long term financing. Exclude from the WACC calculation 1

6 Overdraft
The overdraft is reayable in one years time and thus is short term financing and should not be included, 1

WACC Table (Calculation)

Source of Finance Market Value Weight Costs of Finance WACC


Share Capital 493,714,286 98% 18.50% 18.21%
14% Preference Shares 4,250,000 0.85% 17.74% 0.15%
11% Debentures 1,375,000 0.27% 5.84% 0.02%
Long term loan 2,370,661 0.47% 9.13% 0.04%
501,709,947 100% 18.41% 1P
1P

Conclusion
The WACC rate as at 30 June 2023 is 18,41%, 1P

Total marks 19

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