Reference no: EM132838853

a)     A Company has a balance sheet whose long-term sources of finance indicates the following:  

8% debentures of sh.100 each

10% preference shares whose face value is sh.60.

Ordinary shares @ Sh.20 each

Retained earnings

11,000,000

15,000,000

80,000,000

14,000,000

Additional information

1. The current market price of ordinary shares is sh. 96 per share.

2. The company pays tax at the rate of 30%

3. Preference shares are trading at sh.72 per share in the market.

4. The maturity period of debentures is 15 years; the current market price is sh.90 per debenture.

5. The company has announced a dividend of sh. 6 per share that has been growing at the rate of 4% per annum.

Required

The cost of capital based on market values and book values.