A company has the following capital structure:

£
£1 ordinary shares 100,000 6% £1 preference shares 20,000 Revenue reserves 50,000 10% debentures 50,000 £220,000 The debentures were originally issued at 97; the ordinary dividend is currently 12p per share and the market price of the ordinary share is £2.20. The market expects that, given the recent relaxation of dividend constraint, dividends will grow at l p per share per year.
Required:
Calculate the company's cost of capital, stating clearly any assumptions and limitations of your analysis.

Transcribed Image Text:

1 ordinary shares 100,000 6% 1 preference shares 20,000 Revenue reserves 10% debentures 50,000 50,000 220,000