Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Jackson limiteds limited capital structure at the end of 2017 was as follows 4,000,000 ordinary shares of Ksh 5 payable 100,000 bonds of Ksh 1000,
Jackson limiteds limited capital structure at the end of 2017 was as follows
- 4,000,000 ordinary shares of Ksh 5 payable
- 100,000 bonds of Ksh 1000, 8% Irredeemable debentures.
- 60,000 bonds of Ksh 1000, 10% redeemable bonds.
- 500,000, 12 % Irredeemable preference shares of Ksh 10
- Ksh 80,000,000 Retained earnings
Additional information is provided as follows
- Ordinary shares are currently selling at sh 25 each but a new issue would sell at Ksh 16.
- Ordinary share Dividend is expected to grow at 8% per annum to infinity.
- Irredeemable bonds are trading at 110% of par value while redeemable one at 90%.
- Irredeemable preference shares are trading at Ksh 8
- Redeemable bonds have 4 more years remaining at will be redeemed at par. all bonds pay interest annually. Currently, there are trading at Ksh 980.
- The company projects its Earnings before Interest and taxes at the end of 2017 to Ksh 46,800,000.00
- Dividend pay-out ratio is 40% and corporate tax rate is 25%.
Required:
` Compute weighted average cost of capital of the company. (Use market weights) 12 Points
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started