Exam (elaborations)
FIN3701 Assignment 2 (Semester 2)Answers - Due: 14 September 2023
- Course
- FIN3701
- Institution
- University Of KwaZulu-Natal (UKZN)
FIN3701 Assignment 2 (Semester 2)Answers - Due: 14 September 2023
[Show more]
Content preview
FIN3701ASSIGNMENT 2 (SEMESTER 2)
DUE DATE: 14 September 2023
QUESTION 1
REQUIRED:
1.1 Calculate the WACC associated with each range of financing/break-point. (18 marks)
ANSWER:
To calculate the Weighted Average Cost of Capital (WACC) associated with each range of financing/break-
point, we'll need to consider both the cost of debt and the cost of equity for each financing option. We'll
also calculate the weighted average cost based on the optimal capital structure weights of 40% debt and
60% equity.
Calculations of the WACC for each financing option:
1. Debt Financing:
• Debt Amount (D) = R150,000
• Cost of Debt (Kd) = [(Annual Coupon Rate * (1 - Tax Rate)) + (Flotation Cost / (Par Value - Discount))]
/ (1 - Flotation Cost)
• Kd = [(0.08 * (1 - 0.30)) + (20 / (1000 - 50))] / (1 - 0.03)
• Kd = [0.056 + ()] / 0.97
Terms of Utilisation:
1. • Educational
Kd ≈ and [0.056 + You
Reference: 0.02105] / 0.97for educational, reference, and comparison purposes.
may use this document
2. No Duplication or Misrepresentation: You are not allowed to duplicate or misrepresent this document's content as your own work.
• Kd ≈ 0..97
3. Accept Consequences: If you misuse or plagiarize this document, you accept responsibility for any resulting consequences.
• Kd ≈ 0.0794 or 7.94%
Your use of this document signifies your agreement to these terms. Failure to comply may lead to legal action or other appropriate measures.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller StudentGyde. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53068 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now