Reference no: EM132958273

Jackson limited capital structure at the end of 2017 was as follows

• 10,000,000 ordinary shares of sh 5 payable
• 100,000 bonds of sh 1000, 8% Irredeemable debentures.
• 60,000 bonds of sh 1000, 10% redeemable bonds.
• Sh 80,000,000 Retained earnings

Additional information is provided as follows

a. The shares are currently selling at sh 25 each but a new issue would sell at sh 16.

b. Last year the company paid a dividend of sh 5 and dividend is expected to grow at 8% per annum to infinity.

c. Irredeemable bonds are trading at 110 while redeemable one at 90.

d. The market value of the shares is sh.20 each ex-div and an annual dividend of Sh.4 per share is expected to be paid in perpetuity. The debentures are considered to be risk-free and are valued at par.

e. Redeemable bonds have 4 more years remaining at will be redeemed at par. all bonds pay interest annually.

Required:

Problem a) Compute the cost of carious components of Jackson's capital structure

Problem b) compute the market value and book value of various sources of long term capital of the firm