Question
11. The following is the capital structure of a company: Source of capital Equity shares @ Rs. 100 cach 9% Cumulative Preference shares@Rs. 100 each
11. The following is the capital structure of a company: Source of capital Equity shares @ Rs. 100 cach 9% Cumulative Preference shares@Rs. 100 each 11% Debentures Retained Earnings 25,00,000 Total The current market price of the company's equity share is Rs. 200. For the last year the company had paid equity dividend at 25% and its dividend is likely to grow 5 per cent every year. The corporate tax rate is 30 per cent and shareholders personal income tax rate is 20 per cent. Book Value 8,00,000 2,00,000 6,00,000 4,00,000 20,00,000 Market Value 16,00,000 2,40,000 6,60,000 You are required to calculate: (i) Cost of capital for each source of capital. (ii) Weighted average cost of capital based on book value weights. (iii) Weighted average cost of capital based on market value weights.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started