● The following is the Capital Structure of Cisco Company Ltd. as on December 31, 2016:

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Equity Shares: 5,000 shares (of `100 each) 5,00,000 10% Preference Shares (of `100 each) 2,00,000 12% Debentures 3,00,000 10,00,000 The market price of the company’s share is `110 and it is expected that a dividend of `10 per share would be declared for the year 2017. The dividend growth rate is 6%.

(i) If the company is in the 50% tax bracket, compute the weighted average cost of capital.

(ii) Assuming that in order to finance an expansion plan, the company intends to borrow a fund of `5 lakhs bearing 14% rate of interest, what will be the company’s revised weighted average cost of capital? This financing decision is expected to increase dividend from `10 to

`12 per share. However, the market price of equity share is expected to decline form `110 to

`105 per share.