A local company XYZ ltd. has a capital structure of KShs. 19,200,000 composed of ordinary share capital, preference shares, bank Loan and Debentures as shown below. Source of capital Amount Ordinary shares capital (par value Shs. 20) 9,600,000 8% preference share capital (par Value 12) 3,840,000 18% Bank Loan 3,360,000 20% Debenture (par value shs. 90) 2,400,000 The market price of the company securities is given as below: Source of Capital MPS(Shs) Ordinary Shares 64.00 8% preference shares 30.00 20% Debenture 90.00 The company has maintained payment of ordinary share dividend of Kshs. 4 per share and this is expected to grow at a constant rate into perpetuity. The company has a policy of a constant payout ratio of 60% and a return on equity of 12%. Assuming a tax rate of 40%. Required Compute the cost of: ordinary share capital, 8% prefences share capital, 18% bank loan and 20% debentures. Determine the weighted average cost of capital (WACC) for the company
A local company XYZ ltd. has a capital structure of KShs. 19,200,000 composed of ordinary share capital, preference shares, bank Loan and Debentures as shown below.
Source of capital Amount
Ordinary shares capital (par value Shs. 20) 9,600,000
8%
18% Bank Loan 3,360,000
20% Debenture (par value shs. 90) 2,400,000
The market price of the company securities is given as below:
Source of Capital MPS(Shs)
Ordinary Shares 64.00
8% preference shares 30.00
20% Debenture 90.00
The company has maintained payment of ordinary share dividend of Kshs. 4 per share and this is expected to grow at a constant rate into perpetuity. The company has a policy of a constant payout ratio of 60% and a
Required
- Compute the cost of: ordinary share capital, 8% prefences share capital, 18% bank loan and 20% debentures.
- Determine the weighted average cost of capital (WACC) for the company
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