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MAC2602 Assignment 2 2021
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  • January 12, 2022
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  • 2021/2022
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Principles of strategy, risk and financial management
techniques
MAC2602
Department of Management Accounting
Assignment 02 for 2021 (compulsory)




COMPULSORY ASSIGNMENT 02/2021 FOR BOTH SEMESTERS

LONGER TYPE QUESTIONS (100 marks) (120 minutes) Unique number – 656276

Set your calculator on four decimal places for this assignment.


QUESTION 1 (22 marks)

CoreOre Limited is financed as follows:

R’000
Non-distributable reserves 133 000
Long-term loans 98 500
200 million ordinary shares 200 000
Retained Income 9 555
Bonds 170 800

Their target capital structure is (D:E) 40:60.

The shares are currently trading at R320 per share. Investors expect earnings and dividends
to grow at a constant rate of 8% in the future. The previous dividend that was paid
amounted to R4,60 per share.

The cost of debt before tax is 13%. The risk-free rate is considered to be 8,5% and the
market return is 15%.

, The current tax rate is 28% and their beta is 1,1.
REQUIRED:

a) Show the components of total equity financed amounts as well as the components of
debt financed amounts separately, then calculate the capital structure of CoreOre
Limited (based on book values). [Round your answer to the nearest full percentages.]
(6)

Answer:




b) CoreOre needs to raise R30 million for a project. Advise them on how they should
finance the new project keeping the target capital structure in mind. (Show all the
relevant calculations.) (4)

Answer:

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