● The Capital Structure and Cost of Capital of a company are given as follows:

Source Book Value (`/lakh) After tax Cost of Capital (%)

Equity Retained Earnings Debentures 200 200 400 16

?

7 800 Equity shares represent shares of `10 each. The current market value of each share is `80 and the corporate tax rate is 40%.
(i) Compute weighted average Cost of Capital of the company using both book values and market values as weights.
(ii) How would you account for the difference, if any, in the average Cost of Capital under (i)
above?