EFFECT OF COST OF CAPITAL AND CAPITAL STRUCTURE ON RETURNS: A CASE OF MOLOLINE SERVICE LIMITED IN NAKURU MUNICIPALITY, KENYA

Abstract

Public transport in Kenya and, especially in urban areas, is dominated by Matatu vehicles. This venture involves substantial capital outlay and, therefore, requires sound financial management. A proper balance between return and risk should be maintained to maximize the market value of an investor. The current study investigated how cost of capital affected returns and the impact of capital structure on returns in the public service vehicle Matatu industry in Nakuru Municipality in Kenya. The findings indicated that most respondents preferred equity (μ = 4.25; SD = 0.907) to debt (μ = 3.47; SD = 1.030) as a source of capital. A major hindrance to the use of debt is its high cost. However, debt was invariably used because of its security and access. Capital structure consisted of shareholders and non-shareholders. In conclusion, MSL should seek alternative ways for members to access loans at lower rates; for instance entering into funding commitments with the financial institutions. Additionally, it should plan to access a wider pool of equity financing by listing in the capital markets

Keywords: Capital Structure, Kenya, Public transport; Matatu; Cost of Capital

Unique Article ID: EJAAFR-238

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