DIE BERAMING VAN DIE GEWEEGDE GEMIDDELDE KOSTE VAN KAPITAAL MET VERWYSING NA BESPROEIINGSBOERE IN DIE VANDERKLOOF STAATSWATERSKEMA / The estimation of the weighted average cost of capital with reference to irrigation farmers in the Vanderkloof State Water Scheme

Abstract

Abstract The weighted average cost of capital (WACC) represents the cost of all types of capital employed in the business. In few cases, however is the WACC estimated empirically and the development and illustration of a procedure for its estimation would therefore be valuable for carrying out economic analyses. In this study land values and rental rates of irrigation land in the Vanderkloof State Water Scheme were used to estimate the cost of equity capital. The capital structure of irrigation farmers was obtained from balance sheet information. The estimated after-tax rates for the WACC varied from 12,3 per cent to 14,0 per cent per year. The cost of equity capital and its contribution to total capital meaningfully influenced the WACC.