mul LLC is a company formed in the year 2000 and listed on the Muscat Securities Exchange. The company has primarily engaged in the manufacture of Milk Chocolates. Recently, the company has expanded its operation by entering into Cool drinks business. As a result, the company is planning to open two more factories in Oman and the Senior manager (finance) Mr. Mohammed Abu has asked to identify the possible sources of funds for the same. As per the estimate submitted by SMA team (Strategic Management Accounting team), the company requires 200,000 OMR to proceed with the proposed investments. By considering the facts and figures given below you are asked to evaluate the proposed capital structure by answering the given questions. Abstract of the Capital structure developed by Mr. Mohammed Abu, CPA Source of capital Amount in OMR Equity share capital( 5000 shares at OMR 10 each) 100,000 Reserve and surplus 20,0000 10% preference shares 40,000 8 % debentures 40,000 Total fund required 200,0000
Amul LLC is a company formed in the year 2000 and listed on the Muscat Securities Exchange. The company has primarily engaged in the manufacture of Milk Chocolates. Recently, the company has expanded its operation by entering into Cool drinks business. As a result, the company is planning to open two more factories in Oman and the Senior manager (finance) Mr. Mohammed Abu has asked to identify the possible sources of funds for the same. As per the estimate submitted by SMA team (Strategic
Abstract of the Capital structure developed by Mr. Mohammed Abu, CPA
|
Source of capital |
Amount in OMR |
|
Equity share capital( 5000 shares at OMR 10 each) |
100,000 |
|
Reserve and surplus |
20,0000 |
|
10% |
40,000 |
|
8 % debentures |
40,000 |
|
Total fund required |
200,0000 |
Additional Information
The market price of equity share is estimated as OMR 60 and it is expected that the company will pay a dividend of OMR 4 per share. The estimated growth rate is 4% and the Income tax rate is 30%.
Question
Calculate the cost of reserves and preference capital?
Kr=10.6% Kp = 10%
Kr= 7.46%, Kp= 10%
None of these
Kr= 10.6, Kp = 7%
Step by step
Solved in 2 steps
