1. A company issued 12% debentures at par for $2.00.000. Compute the after.

tax cost of debentures assuming the tax rate at 25%.

(a) A company Issues $150,000, 14% Debentures of $.100 cach. The

company is in 30% tax bracket. You are required to compute the cost of debt

after tax, if debentures are issued at (1) Par, (I) 10% discount, and (ll) 10%

premium

(b) If brokerage is pad at 4%, what will be the cost of cebentures if issue is at

par?

2. A company issues 11% redeemable preference shares of $100 each at 5%

premium Redeemable after 10 years at 10% premium. If the floatation cost of

each share is $5, What is the value of KP (Cost of preference share) to the

company?

3. ABC Company's share is currently quoted in market at $60. It pays a dividend

of So Per share and investors expect a growth rate of 12% per year.

Calculate:

() The company's cost of equity capital.

(i1) The indicated market price per share, if anticipated growth rate is 14%.

(ill) The market price, if the company's cost of equity capital is 12%,

anticipated growth rate is 13% p.a., and dividend of R$.3 per share is to be maintained

5. RIL has the following capital structure and tax adjusted cost of capital for the

different sources of fund.

Equity Shares (100000 Shares)

14% Debentures

40,00,000

60,00,000

The company is expected to declare a dividend of 56 per share. The market

price per share is $ 60. The dividend is expected to grow at 10%.

Compute weighted average cost of capital of RIL Ltd assuming 30 % tax rate.