Hero MotoCorp are estimating the weighted average Cost of Capital of its new project. The company plan to finance this new project by 50 percent ordinary shares, 10 percent preference equity and rest by issuing debt. The return on FTSE 100 index is 11.4 percent and the 3 months treasury bills yield is 4%. The Hellman beta is 1.05. The average yield to maturity of Hellman semiannual coupon bonds is 8.3 percent. The Preference share are currently valued at 76, with a par value of 100 and an 8% dividend. The Hero MotoCorp is in the 40% marginal Tax bracket. a. Find the Pretax cost of Debt, cost of preference and ordinary shares.

b. Calculate MotoCorp Pre- tax and after Tax WACC. c. Suppose MotoCorp makes some changes in its capital structure, now debt has increased to 50 percent and ordinary equity requirement reduce to 40 percent and the proportion of preference share shall remain same. Because of this proposal the yield to maturity increases to 9 percent and the beta is expected to rise to 1.15 due to increased leverage. The market value of preference equity has fallen to 70. What will be the effect on Weighted average cost of capital.