The capital structure of Jmaa Ltd. Which is considered optimal, as at 30 September 2009 was as follows : The company intends to raise additional funds...

      

The capital structure of Jmaa Ltd. Which is considered optimal, as at 30 September 2009 was as follows :
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The company intends to raise additional funds for investing in a new project which is estimated to
cost sh. 240 million.
Additional information:
1. Any new ordinary shares issued will incur a 12% floatation cost per share.
2. The most recent ordinary dividend per share was sh. 5.
3. The past and expected future earnings growth rate is 10%. The earnings growth rate is expected
to be matched with growth rate in dividends.
4. The current dividend rate is 6.25%.
5. The company expects to raise a maximum of sh. 36 million from retained earnings to finance
the project.
6. Additional 8% preference shares can be issued at the current market price of sh. 80 per share.
7. A new 12% debenture can be issued at sh. 960 for each debenture through the stock exchange.
8. Corporation tax rate is 30%.

Required:
i) The current market price per ordinary share.
ii) The number of ordinary shares that should be issued to finance the project.
iii) The company’s weighted marginal cost of capital (WMCC)

  

Answers


Kavungya
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Kavungya answered the question on April 11, 2022 at 11:33


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