Question
Trends fashion is acquiring lira fashion at price Rs 50 lacs. Presently firm has debt-equity mix of 40:60. Mr Shams , the CEO, is planning
Trends fashion is acquiring lira fashion at price Rs 50 lacs. Presently firm has debt-equity mix of 40:60. Mr Shams , the CEO, is planning to utilize the retained earnings of Rs. 12 lacs for acquisition. The post tax costs of debt that the firm can raise are 10% p.a. up to 9 lacs and 12% p.a. beyond that. The beta of Trends fashion is 1.2 . Estimate the additional equity and debt the firm would raise if it wants to maintain the debt equity mix. What are the overall marginal cost of funding if the risk free rate of return is 6% and returns from the market is 16%
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