...

Spread the word.

Share the link on social media.

Share
  • Facebook
Have an account? Sign In Now

Sign Up

Sign Up to our social questions and Answers Engine to ask questions, answer people’s questions, and connect with other people.

Have an account? Sign In

Have an account? Sign In Now

Sign In

Login to our social questions & Answers Engine to ask questions and answer student's questions & connect with other students.

Sign Up Here

Forgot Password?

Don't have account, Sign Up Here

Forgot Password

Lost your password? Please enter your email address. You will receive a link and will create a new password via email.

Have an account? Sign In Now

Sorry, you do not have permission to ask a question, You must login to ask a question.

Forgot Password?

Need An Account, Sign Up Here

Sorry, you do not have permission to add post.

Forgot Password?

Need An Account, Sign Up Here

Please briefly explain why you feel this question should be reported.

Please briefly explain why you feel this answer should be reported.

Please briefly explain why you feel this user should be reported.

Sign InSign Up

Linuqa Students help

Linuqa Students help Logo Linuqa Students help Logo
Search
Ask A Question

Mobile menu

Close
Ask a Question
  • Home
  • Groups page
  • Questions
  • Tags
  • Badges
  • Help
  • New Questions
  • Trending Questions
  • Must read Questions
  • Hot Questions
Home> Questions>Q 3538
Next
Answered
Anonymous
  • 0
Anonymous
Asked: October 22, 20222022-10-22T03:58:22+02:00 2022-10-22T03:58:22+02:00In: Managerial Finance 320

African Oxygen Limited (Afrox) is sub-Saharan Africa’s market leader in gases and welding products. Afrox was founded in 1927, listed on the JSE in 1963, and has prospered by constantly meeting the needs of customers and developing solutions that add value to customers’ applications. Afrox operates in South Africa and in 10 other African countries and manages operations in five more on behalf of their parent company, The Linde Group, a global gases, engineering and technology company. Their processes include blanketing, purging and sparging.

  • 0

African Oxygen Limited (Afrox) is sub-Saharan Africa’s market leader in gases and welding products. Afrox was founded in 1927, listed on the JSE in 1963, and has prospered by constantly meeting the needs of customers and developing solutions that add value to customers’ applications. Afrox operates in South Africa and in 10 other African countries and manages operations in five more on behalf of their parent company, The Linde Group, a global gases, engineering and technology company. Their processes include blanketing, purging and sparging.

To ensure safe and efficient cost effective sparging, Afrox Ltd has proposed to acquire a new reactor that uses dry gas, that is, gaseous liquid nitrogen (GLN).  The new reactor will cost N$4 500 000 and will guarantee annual cost savings of N$3 600 000. The incremental costs are N$2 300 000 per annum and the new reactor is estimated to have a life span of 5 years.

The capital structure of Afrox Ltd include the following:

  • 600 000 N$2 ordinary shares currently trading at N$2.40 per share.
  • 200 000 preference shares trading at N$2.50 per share (issued at N$3 per share). 10 % p.a. fixed rate of interest.
  • A bank loan of N$1 000 000 at 12 % p.a. (payable in five years’ time)

Additional information

  • The company’s beta is 1,4. A return on market of 15% and a risk-free rate of 6%.
  • Current tax rate is 28 %.
  • Current dividend is 50c per share and dividends are expected to grow by 7 % per annum, forever.

 

REQUIRED

MARKS

a)      Calculate the cost of Afrox’s equity using:

                                  i.            Capital Asset Pricing Model (CAPM)

                                ii.            Dividend Discount Model (DDM)

6

b)      Calculate the cost of preference shares and the after-tax cost of debt

4

c)      Calculate the Weighted Average Cost of Capital (WACC) of Afrox Ltd using CAPM for cost of equity

6

d)      Assuming a WACC of 14%, and using relevant calculations, advise whether Afrox should acquire the new reactor

e)      Suppose Afrox Ltd would like to finance other new projects and can only make use of one of the sources of finance (equity, preference shares or debt), which of the three would you recommend? Justify your answer

 

capm
  • 1 1 Answer
  • 28 Views
  • 0 Followers
  • 0
    • Report
  • Share
    Share
    • Share onFacebook
    • Share on Twitter
    • Share on LinkedIn
    • Share on WhatsApp

Leave an answer
Cancel reply

You must login to add an answer.

Forgot Password?

Need An Account, Sign Up Here

1 Answer

  • Voted
  • Oldest
  • Recent
  • Random

Sorry, you do not have permission to view answers.

Sidebar

Ask A Question

Stats

  • Questions 316
  • Answers 247
  • Posts 3
  • Comment 1
  • Best Answers 205
  • Users 39
  • Most visited
  • Answers
  • Anonymous

    While James Craig and his former classmate Paul Donnie both ...

    • 1 Answer
  • Linus Moses

    FINANCIAL ACCOUNTING 202 -2021 FIRST OPPORTUNITY EXAMINATION QUESTION PAPER -Multiple ...

    • 1 Answer
  • Linus Moses

    Let us assume a closed economy with government expenditure (Go), ...

    • 2 Answers
  • Anonymous

    2. A bakery makes $4 profit on its wedding cakes ...

    • 1 Answer
  • Anonymous

    A car rental company is considering setting up a division ...

    • 2 Answers
  • Linus Moses
    Linus Moses added an answer (a) Reasons for Planning the Audit: Proper planning helps to:… May 26, 2023 at 10:51 pm
  • Linus Moses
    Linus Moses added an answer (a) List any requirements related to the conduct of an… May 26, 2023 at 6:40 pm
  • Linus Moses
    Linus Moses added an answer A)   May 15, 2023 at 2:22 pm
  • Linus Moses
    Linus Moses added an answer Answers E. Price Skimming Penetration Pricing Premium Pricing Product Bundling… May 15, 2023 at 1:27 pm
  • Linus Moses
    Linus Moses added an answer b)   May 11, 2023 at 4:59 am

Trending Tags

accounting arr auditing cma612s cost fac fac612s gfa gfa711s gma gma711s gta gta711s ias 8 ima612s irr mfn710s npv tax vat

Explore

  • Home
  • Groups page
  • Questions
  • Tags
  • Badges
  • Help
  • New Questions
  • Trending Questions
  • Must read Questions
  • Hot Questions

Footer

Linuqa

We want to connect the people who have knowledge to the people who need it, to bring together people with different perspectives so they can understand each other better, and to empower everyone to share their knowledge

LEGAL

  • Terms of Use
  • Privacy Policy
  • Cookie Policy

Get help

  • Knowledge Base
  • Support

News letters

Follow

2022©Copyright | linuqa.com | All Rights Reserved
With Love by linusite

Insert/edit link

Enter the destination URL

Or link to existing content

    No search term specified. Showing recent items. Search or use up and down arrow keys to select an item.
      Seraphinite AcceleratorOptimized by Seraphinite Accelerator
      Turns on site high speed to be attractive for people and search engines.