A local company XYZ ltd. Has a capital structure of KShs. 9,600, 000 composed ofordinary share capital, preference shares ,bank Loan andDebentures as shown below.

Source of capitalAmount

Ordinaryshares capital(par value Shs. 20)4,800,000

8% preference share capital(par Value 12)1,920,000

18% Bank Loan1,680,000

20% Debenture(par value shs. 90)1,200,000

The market price of the company securities is given as below:

Source of CapitalMPS(Shs)

Ordinary Shares32.00

8% preference shares15.00

20% Debenture90.00

The company has maintained payment of ordinary share dividend of Kshs. 4 per share and this is expected to grow at a constant rate into perpetuity. The company has a policy of a constant payout ratio of 60% and a return on equity of 12%. The floatation costs on ordinary shares and preference shares is Shs. 4.00 and Shs. 2.00 respectively. Assuming a tax rate of 40%.

Required

a) Determine the various cost of finance(8 Marks)

b) Determine the weighted average cost of capital (WACC) for the company.