Q#3 -B A transport company is interested in measuring its specific cost of capital of different sources as well as the overall cost of capital the following information is provided and is associated with the sale of equity shares preference share and debentures. The corporate tax may be taken at 55% .Equity share the current market price of equity is 125 per share and the firm is expected to pay a dividend of 15 at the end of the current year. Growth rate in dividends is 9%.the new equity share can be sold at 123 per share ( an underwriting fee of 2 per share is payable ) the 15% preference share of 100 each can be sold at premium of 10% ( an underwriting fee of 2 per share is payable ) the company sell 15 year 14% debentures of 1,000 each for 970.tax rate is 48% , further the book value of different sources are as follow

Sources Book value

Equity share capital 60,000,000

Retained earnings 15,000,000

Preference share 450,000

Long term debts 1,800,000

Required

• Specific cost of capital
• Weighted average cost of capital