XYZ Ltd. has the following capital structure: Source Description Amount Equity share capital 100 lac shares of face value Rs lacs 1000 Rs 10 each Reserves and surplus Rs 1600 lacs Debentures 2000 debentures of face value Rs 1 lac each Rs 2000 lacs Fixed deposits Rs 500 lacs The company pays 9.5% interest on debentures and 10% interest on fixed deposits. The beta of the company is 1 23 yield on Gol bonds is 5.5% and market risk premium is 6.5%. The current market price of equity shares is Rs 120, and of debentures is Rs 1.02 lacs. The debentures are redeemable at par after 5 years FDs are redeemable after 3 years. The tax rate is 30% Calculate weighted average cost of capital using (a) Book Value Weights and (b) Market Value weights (15 marks) Data about returns under five different future economic scenarios for Laxmi Corp and Madhu Industries is given below: Economic Scenario Probability Return on Laxmi Corp Return on Madhu Ind 1 0.10 20% -15% 2 0.15 25% 0% 3 0.40 5% 15% 4 0.20 0% 20% 5 0.15 -10% 30% a. Calculate the expected return and variance of both companies (10 marks) b. If an investor invests in a portfolio of Laxmi Corp and Madhu Industries in the proportion of 40:60. Calculate the expected return and variance for this portfolio. (10 marks)