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Somaco Ltd is planning to build a business commercial complex along Entebbe Highway. The project will cost Shs 180 million. Somaco's current capital structure which is considered optimal is as follows:
Shs '000'
Debt 384,000
Ordinary shares (par value Shs 10) 480,000
Retained Profits 96,000
960,000
The following information is also available:
Required:
Question i. Determine how much of the Shs 180 million is to be raised by equity capital if the capital structure is to remain unchanged.
Question ii. Determine how much of the capital must come from retained earnings
Question iii. Determine how many new ordinary shares have to be floated to raise the required portion of equity capital.
Question iv. Calculate the investment's marginal cost of capital
Given the following data:- Risk free return on treasury bill is 5%;Market return is 10% and Beta (β) is 2 : Required: Calculate the cost of equity
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