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Question - Cost of Capital

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7 views2 pages

Question - Cost of Capital

Uploaded by

Tobias Owiny
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1

BUDZ PROFESSIONAL TRAINERS AND CONSULTANTS

Question

Chrispin (U) Ltd (CUL) is a public limited company dealing in real estate. The company
purchases and sells land and buildings. It also manages rental properties on behalf of
others as well as selling land and buildings for others for a commission. CUL is the leading
real estate company in the central region of Uganda.

CUL’s Statement of financial position as at 31 December 2023;

ASSETS Shs ‘000’ Shs ‘000’


Non-Current Assets:
Premises 968,000
Plant & Machinery 410,250
Motor Vehicles & Trucks 330,000
Equipment 125,560
Computers & Printers 95,200
Furniture & Fittings 80,800
Preliminary Expenses 40,000
2,049,810
Current Assets:
Inventory: Land 988,000
Buildings 755,000 1,743,000
Trade Receivables 778,525
Prepaid Water 550
Commission in Arrears 8,000
Bank 165,000
Total Assets 4,744,885
EQUITY & LIABILITIES
Equity:
Ordinary Share Capital (Shs 20,000 each) 1,080,000
10% Preference shares 150,000
BUDZ PROF. TRAINERS CPA BUDALAH NSUBUGA 0775581435/0700189530
2

Retained Earnings 1,861,297


Total Equity 3,091,297
Non-Current Liabilities:
10% Convertible bonds (Shs 100 each) 100,000
10% irredeemable debentures 100,000
15% redeemable preference shares 150,000

Current Liabilities:
6% Overdraft 230,000
Trade Payables 438,000
Accrued Interest 36,000
Property Mtg Fees in Advance 199,900
Accrued Audit Fees 100,500
Corporation Tax 199,188
Proposed Dividends 100,000
Total Current Liabilities 1,553,588
TOTAL EQUITY & LIABILITIES 4,744,885

CUL’s ex-dividend market value of equity is Shs 1,728 million. The ex-interest market
value of the convertible bonds is Shs 840 million and the ex-dividend market value of
the 10% preference shares is Shs 225 million. CUL has just paid an ordinary dividend of
Shs 2,300 per share and expects dividends to grow by 9%. The 10% preference shares
have a par value of Shs 1,200.

The 10% irredeemable debentures of Shs 1,000 were issued at a discount of 10% and
incurred 4% floatation costs.

The convertible bonds of CUL have a conversion ratio of 10 ordinary shares per bond.
The conversion and redemption dates are both on March 31, 2029. The ordinary share
price of CUL at the conversion date is expected to be Shs 120 and it is assumed that
conversion will take place.

The 15% redeemable preference shares of Shs 2,000 each can fetch Shs 2,500 and these
shares will be redeemed after 10 years at par. CUL pays tax at a rate of 30%.

Required:

(a) Assume today is 1 April 2024 calculate the market value weighted average cost
of capital of CUL.
(b) Determine the weighted average cost of capital using book values.

BUDZ PROF. TRAINERS CPA BUDALAH NSUBUGA 0775581435/0700189530

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