Brine investment limited wishes to raise funds amounting to

Question

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 :

1. ordinary share capital
2. debt capital
3. preference share capital

Compute the Company's current wages and average cost of capital