MTP Ltd is a newly established firm in Tanzania which produces and sells Mango juice all...

   

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MTP Ltd is a newly established firm in Tanzania which produces and sells Mango juice all over the country. The directors of the company are planning to expand the company capacity by opening another processing center in Arusha region. According to the market analysis as well as financial analysis, investing in Arusha is feasible as it will enable the company to capture more market within the country and outside the country. Currently, MTP Ltd has invested a total capital of 50,000,000 which is all financed by equity shares from owners of the company. finance manager has estimated that the company need 70,000,000 Shillings to establish the processing center and has provided the following financing options that can be considered if the decision to expand the firm's operations has to be implemented. Required Return/Interest Source of capital Issue Equity shares Issue Corporate bonds Bank debts 12% 5% 8% According to the MTP Ltd board of director's decisions, the company debt to equity ratio should not exceed 50% in order to minimize bankruptcy risk and the company can issue corporate bonds to the tune of 10,000,0000 shillings only. The corporate tax rate is 20%. Required a. Basing on the information above, what will be resulting feasible capital structure for the company (25 Marks) b. Calculate the resulting weighted average cost of capital basing on the capital structure in part (i) above (15 Marks) MTP Ltd is a newly established firm in Tanzania which produces and sells Mango juice all over the country. The directors of the company are planning to expand the company capacity by opening another processing center in Arusha region. According to the market analysis as well as financial analysis, investing in Arusha is feasible as it will enable the company to capture more market within the country and outside the country. Currently, MTP Ltd has invested a total capital of 50,000,000 which is all financed by equity shares from owners of the company. finance manager has estimated that the company need 70,000,000 Shillings to establish the processing center and has provided the following financing options that can be considered if the decision to expand the firm's operations has to be implemented. Required Return/Interest Source of capital Issue Equity shares Issue Corporate bonds Bank debts 12% 5% 8% According to the MTP Ltd board of director's decisions, the company debt to equity ratio should not exceed 50% in order to minimize bankruptcy risk and the company can issue corporate bonds to the tune of 10,000,0000 shillings only. The corporate tax rate is 20%. Required a. Basing on the information above, what will be resulting feasible capital structure for the company (25 Marks) b. Calculate the resulting weighted average cost of capital basing on the capital structure in part (i) above (15 Marks)