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c) On 31 December 2018 you are provided with the following capital structure of Uzima Ltd which is optimal. Long term debt (16%) Ordinary share
c) On 31 December 2018 you are provided with the following capital structure of Uzima Ltd which is optimal. Long term debt (16%) Ordinary share capital (Sh.10 par) Retained earnings Sh."000" 270,000 180,000 150,000 600,000 The company has total assets amounting to sh.360 million but this figure is expected to rise to Sh.1000 million by the end of 2019. You are also informed that: 1. Any new equity shares sold will net 90% after flotation costs. 2. For the year just ended the company paid Sh.3.00 in dividends per share. 3. New 16% debt can be raised at par through the stock exchange. 4. The past and expected earnings growth rate is 10% 5. The current dividend yield is 12% 6. The company's dividend payout ratio of 50% shall be maintained in 2019. 7. Assume marginal at rate of 40% 8. The company's capital structure is optimal Required Determine the component cost of capital for each source of finance. (6 marks)
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