9. The Capital Structure of ABC Ltd. as follows:

Source of capital Book value (`) Market value(`)

Equity shares @ `100 each 40,00,000 80,00,000 10% Cumulative preference shares @ `100 each 10,00,000 12,00,000 12% Debentures 30,00,000 33,00,000 Retained earnings 20,00,000 —

1,00,00,000 1,25,00,000 The current market price of the company’s equity share is `200. For the last year the company had paid equity dividend at 20% and its dividend is likely to grow 6% every year. The corporate tax rate is 30% and shareholders personal income tax rate is 20%.

You are required to calculate:

(i) Cost of Capital for each source of capital.

(ii) Weighted average Cost of Capital on the basis of book value weights

(iii) Weighted average Cost of Capital on the basis of market value weights.