Grosseto Drywall Systems Ltd is in discussion with investment bankers regarding the

raising of capital. The management is concerned that the capital structure is not as

efficient as it could be, and the companys capital is too expensive.

The current capital structure of Grosseto Drywall Systems Ltd is as follows:

Source: Market values (R)

Ordinary shares (R2 each) 2 500 000

12% preference shares of R2 each 3 500 000

9% non-redeemable debentures 4 000 000

Additional info:

The ordinary shares are currently trading at R12 per share. An ordinary dividend

of 50 cents per share has recently been paid and dividends are forecast to grow

at 10% per annum for the foreseeable future.

The companys preference shares are currently trading at R1,80 per share, and

they are non-redeemable.

The company plans to issue additional 9% non-redeemable debentures of R100.

The debentures are expected to trade at R110 each immediately after being

issued.

The corporate tax rate is 28%.

REQUIRED:

4.3 Calculate the cost of:

a) Ordinary shares (3)

b) Preference shares (3)

c) Debt (4)