Asambe (Pty) Ltd is a newly registered company that wants to invest in a new machine. The
chief executive officer (CEO) recently heard about the term “weighted average cost of
capital” (WACC) and the important role it plays in capital investment decisions.
The CEO wants to know more about what the WACC means as well as what Asambe’s
WACC is.
The following financial information is available to you:

2023 market values
- Share capital R100 000
- Preference share capital R50 000
Non-current liabilities
- Good Bank loan account R70 000

Additional information:
• The shareholders of ordinary shares expect a return of 12%.
• The shareholders of preference shares expect a return of 15%.
• Similar loans have a yield to maturity of 13.5% per annum.
• Income tax rate is 30%.
Note: Round off all answers to the nearest two decimals.

Explain to the CEO what the WACC of a company means.
Calculate Asambe’s WACC using the above information.


Public Answer

PNBQBD The First Answerer