11. (a) Z Ltd. issued 10,000 12% preference share of `100 each at a premium of 10%....

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11.

(a) Z Ltd. issued 10,000 12% preference share of `100 each at a premium of 10%. The floatation cost was 5% on issue price. The preference share will be redeemed at a premium of 20% after five years. The tax rate applicable to the company is 30%.
The corporate dividend tax is 10%. Compute cost of preference share of Z Ltd.

(b) T Ltd. has the following capital structure:
(` in lakh)
Equity Share capital (10 lakh shares) 100 Retained earnings 130 14% debentures (70,000 debentures) 70 16% Term loan 100 400 The market price per equity share is `25. The next expected dividend per share is `2 and it is expected to grow at 8%. The debentures are redeemable after six years at par and the current market quotation is `90 per debenture. The tax rate applicable to the firm is 50%.
You are required to compute weighted average cost of capital of the company using market value as weights.

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Financial Management

ISBN: 9789352605606

1st Edition

Authors: Swapan Sarkar, Bappaditya Biswas, Samyabrata Das, Ashish Kumar Sana

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