11 Cost of Individual Sources of Capital and WACC. Details of the capital structure of Celtic Enterprises, a specialist printing company, are as follows:

£m Ordinary share capital (£1 ordinary shares fully paid) 5 6% Preference shares (£1 nominal value) 2 Retained earnings 14 7% Debentures (irredeemable) £100 par 1 8% Debentures (redeemable) £100 par 2 Ordinary shares are currently trading at £2.80 and a dividend of 34 pence per share is due for payment. Dividend per share has been growing at 3 per cent per annum and the directors expect this rate of growth to continue. Preference shares have a current market value of £0.89.
The irredeemable debentures are trading at £92. The redeemable debentures are due for redemption in 4 years time and currently have a market value of £88. The rate of corporation tax is 33 per cent.
You are required to:

(a) Calculate the cost of each individual source of capital in the company’s capital structure.

(b) Calculate the weighted average cost of capital (WACC).