Lusugwa company Ltd is a company operating in Nyahururu, Kenya and has provided you with the following capital structure.

Ordinary share capital: 800,000 ordinary shares of nominal value sh15 General reserves and retained profits sh.900,000 Preference share capital: 8% 400,000 preference shares of par value sh.20 12% Debentures 500,000 bonds of nominal value sh.20

You also learn that: Ordinary shares are currently quoted at sh.25 per share and that a dividend of of sh. 3 per share is expected by the shareholders. These dividends have been growing at 5% p.a.

The preference shares currently retail at sh.28 per share while debenture bonds sell at sh 18 per bond. The ruling corporation tax rate is 30%.

Required i) Component cost of each source of finance ii) The weighted average cost of capital (WACC)

b) A company which desires to expand exponentially must brace itself with costs that are consistent with raising new capital/finance from the open market. Discuss.