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A firm has the following capital structure and after-tax costs for the different sources of funds used: Source of Funds Amount Proportion After-tax cost
A firm has the following capital structure and after-tax costs for the different sources of funds used: Source of Funds Amount Proportion After-tax cost N$. % % Debt 15,00,000 25 5 Preference Shares 12,00,000 20 Equity Shares 18,00,000 20 30 Retained Earnings 15,00,000 25 121 10 12 11 Total 60,00,000 100 a) You are required to compute the weighted average cost of capital. (10 marks) b) If the firm has 18,000 equity shares of N$100 each outstanding and the current market price is N$300, calculate the market, value weighted average cost of capital assuming that the market values and book values of the debt and preference capital are same. (10 marks)
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