question archive Johnson and Johnson (Pty) Ltd is an international company with headquarters in New Brunswick, New Jersey, and is the world's most comprehensive and broadly based manufacturer of health care products
Johnson and Johnson (Pty) Ltd is an international company with headquarters in New Brunswick, New Jersey, and is the world's most comprehensive and broadly based manufacturer of health care products
Subject:BusinessPrice: Bought3
Johnson and Johnson (Pty) Ltd is an international company with headquarters in New Brunswick, New Jersey, and is the world's most comprehensive and broadly based manufacturer of health care products. The business has expanded into third world countries starting with a branch in Johannesburg South Africa. The business has a capital structure of 10 000 000 R1 ordinary shares, market price R2,50. Their preference shares are 1 000 000 10% R1 preference shares, market price R2. Reserves R5 000 000. They have a received a bank loan from Investec Bank of R10 000 000 15%. Debentures R5 000 000 at par value 13, 5% market price R110 (issued at R100).
In order to equalise the tax effect, the debenture and bank loan interest weighting is reduced by multiplying it by 1 minus the given corporate tax rate (27%).
The current and expected future growth rate of ordinary share dividends is 15%.
a) Calculate the overall market value of the capital structure (5)
| Market Value | Proportion | |
b) Calculate the overall cost/returns of each component of the capital structure (10)
- Ordinary shares
-Preference shares
-Debentures
-Bank loan
c) Calculate the WACC - Weighted average cost of capital (5)
| Component | Weighting | Cost | Weighted average cost |
| Ordinary shares | |||
| Preference shares | |||
| Bank loan | |||
| Debentures | |||
| WACC |
