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COST OF CAPITAL
Debt (kd)
Convertible debt:
Step 1: Calculate the future value of each option
Ordinary shares: PV = D¹ / (ke – g)
= (8 + 6%) / (20% - 6%)
= 60.57
Therefore PV = 60.57
n = 5
i = 6 (growth rate)
FV = R81 per share x 20 000 shares = R1 620 000
Debenture: = (100 000 x R10 x 12% x 72%) / (16% x 72%)
= R750 000
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