Jay Kay Company has the following capital structure at December 31, 2005 which considered being optimum: Item Amount (Rs.) 7% Debentures 300,000 9% Preferrence Shares (Rs.20 each) 100,000 Equity (10,000 shares) 600,000 Question 3: Total 1,000,000 The companys shares are selling at a current market price of Rs.23.60 per share. The expected dividend per share next year is 50 % of the 2005 EPS. The following are the earnings per share figures for the company during the preceding ten years. The past trends are expected to continue: The new debentures can be issued at a coupon interest rate of 8%. The companys debenture is currently selling at Rs.96. The new preference issue will fetch a net price of Rs. 20 paying a dividend of Rs.2 per share. The companys marginal tax rate is 50%.

Required: Assume that company needs to raise Rs.600,000 next year and its retained earnings are Rs.200,000. Of the total funds intended to be raised, the proportion of equity should be Rs.360,000. Thus the company will have to raise Rs.160,000 by issuing new shares. Assuming that company incurs floatation cost on new equity shares equal to 10%. Remaining amount will be raised through debentures and preference shares in the existing proportion. Calculate WMCC and revised WACC.