Brine investment limited wishes to raise funds amounting to 10 million to finance a project in the following manner.
- 6 million from debt
- 4 million from floating new ordinary shares
Present capital structure of the company is made up of ;
- 600000 fully paid ordinary shares of 10 shillings each
- Retained earnings 4 million shillings
- 200000 10% preference share of 20 shillings each
- 40000 6% long term debentures of 150 shillings each
The current market value of ordinary share is 60 shillings per share.
The expected ordinary share dividends in a years time 2.40 shillings.
Average growth rate in both dividends and earnings has been 10% over the past 10 years and this growth rate is expected to be maintained in the foreseeable future.
The company's long-term debentures changed hands for 100 shillings each. The debentures will mature 100 years.
The preference share were issued 4 years ago and still changed hands at face value.
Required;
Compute the component cost of :
- ordinary share capital
- debt capital
- preference share capital
Compute the Company's current wages and average cost of capital