The capital structure of Jmaa Ltd. Which is considered optimal, as at 30 September 2009 was as follows : The company intends to raise additional funds...

The capital structure of Jmaa Ltd. Which is considered optimal, as at 30 September 2009 was as follows :

The company intends to raise additional funds for investing in a new project which is estimated to
cost sh. 240 million.
Additional information:
1. Any new ordinary shares issued will incur a 12% floatation cost per share.
2. The most recent ordinary dividend per share was sh. 5.
3. The past and expected future earnings growth rate is 10%. The earnings growth rate is expected
to be matched with growth rate in dividends.
4. The current dividend rate is 6.25%.
5. The company expects to raise a maximum of sh. 36 million from retained earnings to finance
the project.
6. Additional 8% preference shares can be issued at the current market price of sh. 80 per share.
7. A new 12% debenture can be issued at sh. 960 for each debenture through the stock exchange.
8. Corporation tax rate is 30%.

Required:
i) The current market price per ordinary share.
ii) The number of ordinary shares that should be issued to finance the project.
iii) The company’s weighted marginal cost of capital (WMCC)

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Kavungya answered the question on April 11, 2022 at 11:33

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