ASAP!! IN 20 minns Q.F Corporation needs additional capital of Rs. 1b. Firm decided to develop the following capital structure.                                                                                                                                            Security                                                                Market value                     required return Debt                                                      Rs. 20,000,000                                    6.5%                      Preferred stock                                 Rs. 30,000,000                                    9% Common stock                                  Rs. 50,000,000                                    12.5% Its corporate tax rate is 35 percent. What is the firms weighted average cost of capital? State the pecking order theory. How will your shuffle the above capital structure in order to follow the Pecking order theory. Calculate the firm’s weighted average cost of capital, if the firm’s capital structure becomes as per pecking order theory.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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ASAP!! IN 20 minns

Q.F Corporation needs additional capital of Rs. 1b. Firm decided to develop the following capital structure.                                                                                                                           

                Security                                                                Market value                     required return

Debt                                                      Rs. 20,000,000                                    6.5%                     

Preferred stock                                 Rs. 30,000,000                                    9%

Common stock                                  Rs. 50,000,000                                    12.5%

Its corporate tax rate is 35 percent.

  1. What is the firms weighted average cost of capital?
  2. State the pecking order theory. How will your shuffle the above capital structure in order to follow the Pecking order theory.
  3. Calculate the firm’s weighted average cost of capital, if the firm’s capital structure becomes as per pecking order theory.
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