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8. The ABC company has the total capital structure of Rs 80,00,000 consisting of: Particulars Weight (%) Ordinary shares (2,00,000 shares) 50% 10% Preference Shares
8. The ABC company has the total capital structure of Rs 80,00,000 consisting of: Particulars Weight (%) Ordinary shares (2,00,000 shares) 50% 10% Preference Shares 12.5% 14% Debentures 37.5% The shares of the company sells for Rs 20. It is expected that company will pay next year the dividend of Rs 2 per share which will grow at 7% forever. Tax rate 50%. You are required to: (a) Compute a weighted average cost of capital-based on existing capital structure : (b) Compute the new weighted average cost of capital if the company raises an additional Rs 20,00,000 debt by issuing 15% debentures. This would result in increasing the expected dividend to Rs 3 and leave the growth rate unchanged, but the price of the share fall to Rs 15 per share. (c) Compute the weighted average cost of capital if in (b) above, the growth rate increases to 10%
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