Problem
DD Traders uses a combination of shares and debt in their capital structure. The details are given below: There are 3 000 000 R1.50 ordinary shares in issue and the current market price is R2.75 per share. The latest dividend paid was 44 cents and a 4.5% average growth for the past 3 years was maintained. The company has 1 100 000 R1.50, 4% preference shares with a market price of R1.90 per share. DD Traders has a public traded debt with a face value of R6 000 000. The coupon rate of the debenture is 4% and the current yield to maturity of 8%. The debenture has 3 years to maturity. They also have a bank overdraft of R2 000 000 due in 2 years' time and interest is charged at 8% per annum. Additional Information: - DD Traders has a beta of 1.5, a risk-free rate of 7.9% and a return on the market of 16.45%. - Company tax rate is 30%. Calculate the weighted average cost of capital, using the Gordon Growth Model to calculate the cost of equity.