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Question

The following information was extracted from the books of Simba Limited as at 31st December

2016:

                                                                                   Shs.

Ordinary share capital (par value Sh.25)                     8,000,000

8% preference share capital (par value Sh.24)            6,000,000

10% preference share capital (par value Sh.20)          4,000,000

10% debentures                                                          4,000,000

                                                                                   22,000,000

Additional information:

1.     The market value of the 10% debentures on 31 December 2016 was Sh.500,000

2.     The share prices as at 31 December 2016 were as follows:

Market price per share                                                (Sh)

8% preference shares                                                             20

10% preference shares                                                           25

Ordinary shares                                                                      30

3.     The company has maintained payment of an ordinary dividend per share of Sh.3.80 over the past five years.


4.     The corporation tax rate is 30%

Required:

i)                   Cost of 8% preference share capital                                                  (2 Marks)

ii)                 Cost of 10% preference share capital                                                (2 Marks)

iii)               Cost of 10% debentures                                                                    (2 Marks)

iv)               Cost of ordinary share capital                                                            (2 Marks)

v)                 Weighted average cost of capital                                                       (12 Marks)

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