The financial data given below shows the capital structure of Akabebi Company Limited.

10% Sh.1,000 debenture

Ordinary share capital (Sh.20)

Retained earnings

4,900,000

18,000,000

6,000,000

28,900,000

The structure is considered optimum and the management would wish to maintain this level.

Akabebi Company Limited intends to invest in a new project which is estimated to cost Sh.16,800,000 with an expected net cash flow of Sh.3,000,000 per annum for 10 years. The management has proposed to raise the required funds through the following means:

1. Issue 100 10% debentures at the current market value of Sh.5,000 per debenture.

2. Utilise 60% of the existing retained earnings.

3. Issue 10% Sh.20 preference shares at the current market price of Sh.25 per share

4. Issue ordinary shares at the current market price of Sh.45 per share. Floatation cost per share is estimated to be 12% of the share value.

The company's current dividend yield is 5% which is expected to continue in the near future. Corporation tax rate is 30%.