1. Calculate Tikoloho Manufacturing Limited's Weighted Average Cost of Capital (WACC) using market values. To calculate the Weighted Average Cost of Capital (WACC) using market values, the following information is required: 1. Market value of ordinary shares. 2. Market value of preference shares. 3. Market value of debentures. 4. Cost of equity ($K_e$). 5. Cost of preference shares ($K_p$). 6. Cost of debt ($K_d$). 7. Company's tax rate. The provided statement of financial position gives book values for ordinary shares, preference shares, and debentures. However, the market prices for these components are not provided. Additionally, the company's tax rate is not given. Without these crucial pieces of information, it is not possible to accurately calculate the WACC using market values as required by the question. Therefore, the calculation for Tikoloho Manufacturing Limited's WACC cannot be completed with the information provided. 2. Explain how the Capital Asset Pricing Model (CAPM) could be used to estimate the cost of equity for the company, clearly indicating what information would be required and possible sources of this information. The Capital Asset Pricing Model (CAPM) is used to estimate the cost of equity ($E(R_i)$) for a company. The formula is: $$E(R_i) = R_f + \beta (E(R_m) - R_f)$$ Here's how each component is determined and its possible sources: Risk-free rate ($R_f$): This is the return on an investment with zero risk, typically represented by the yield on long-term government bonds (e.g., Treasury bonds) in the relevant currency and market. Source:* Financial news publications, central bank websites, or financial data providers (e.g., Bloomberg, Reuters). Beta coefficient ($\beta$): This measures the systematic risk of the company's stock, indicating its volatility relative to the overall market. A beta greater than 1 means the stock is more volatile than the market, while a beta less than 1 means it's less volatile. Source:* Calculated using historical stock returns compared to market returns over a period (e.g., 3-5 years). Financial data providers often publish calculated betas for listed companies. Expected market return ($E(R_m)$): This is the anticipated return from the overall market portfolio over the investment horizon. Source:* Historical average returns of a broad market index (e.g., JSE All Share Index for South Africa), economic forecasts, or surveys of market professionals. Market risk premium ($E(R_m) - R_f$): This is the additional return investors expect for investing in the overall market compared to a risk-free asset. It compensates for the systematic risk of the market. Source:* Can be derived from historical data (average difference between market returns and risk-free rates) or estimated through surveys of investors and financial analysts. By obtaining these three inputs ($R_f$, $\beta$, and $E(R_m)$), they can be substituted into the CAPM formula to calculate the company's cost of equity. 3 done, 2 left today. You're making progress.