Answer Happy

Question 4 (6 marks) (4 marks) a) Jumbo Factory's ordinary shares are currently selling for R218.40 per share, with a current dividend (Do) of R12.88 per share. The firm's dividends have been growing at an annual rate of 9.36% and this rate is expected to continue in the future. To sell new shares to raise more finance, Jaheem shares will have to be offered at a discount of R4.80 per share and flotation costs are expected to amount to R6.50 per share. Required: Calculate the cost of new ordinary shares for the Jaheem Factory. Show all calculations. b) (2 marks) The current market price of Gabex Ltd ordinary share is R39, the expected dividend (D₁) is R2.50 and the expected growth rate in dividends is 13% p.a. Required; Use the Gordon model to estimate the cost of Gabex Ltd's ordinary shares.