... of irredeemable 8% debentures. The market value of each share is Kshs. 20 exdividend
and an annual dividend of Kshs. 4 per share is expected to be paid in perpetuity. The
debentures are considered to be risk free and are priced at par.
Mr. Kilunda, the managing director of the company is wondering whether to invest in a project which
would cost Kshs. 20 million and yield Kshs. 3.8 million a year before tax in perpetuity. The project has an
estimated beta value of 1.25. The rate of return well-diversified portfolio is 16 percent