Reethu Ltd$.$ has the following Book Values: $[50$ Marks$]$

$($i$)$ Equity Share Capital $($Rs$.10$ each$)$

Rs$.15,00,000$

$($ii$)12\%$ Preference Share Capital $($Rs$.100$ each$)$

Rs$.1,00,000$

$($iii$)11\mathrm{.}5\%$ Debentures $($Rs$.10$ each$)$

Rs$.10,00,000$

$($iv$)11\%$ Term Loan

Rs$.12,50,000$

The next expected dividend on equity is Rs$.3\mathrm{.}60,$ which is expected to grow

at the rate of $7\%.$ The Market price per share is Rs$.40.$ Preference Shares

redeemable after $10$ years is currently traded in the market @ Rs$.75$ per

share. Debentures redeemable after $6$ years are selling at Rs$.80$ per

debentures. The rate of tax of the Company is assumed $30\%.$

Calculate Cost of Capital using

$($A$)$ Book value weights

$($B$)$ Market value weights

$($C$)$ Decide which cost of capital is preferable $($A$)$ or $($B$)$ and why? Give

reasons.