Capital structure in computing its cost of capital

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The B.U. Strong Company is considering a capital budgeting project which would require an initial outlay of one million dollars. The project will provide income from which fully franked dividends can be paid. The balance sheet currently stands as follows:

Long-term Debt    $44.8 million

Ordinary Equity    $79.8 million

Preference Shares $15.4 million

The market value of debt is $50 million, there are 39.9 million ordinary shares currently valued at $3 each, and preference shares are valued at $15.4 million. Please calculate the capital structure in computing its cost of capital?

Reference no: EM132050575

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