Capital Structure Book Value (Rs.) Market Value (Rs.) Equity capital (3 million shares of Rs. 10 par) 30,000,000 54,000,000 Preference capital (25000 shares of Rs.200 par, carrying 15 per cent dividend) 5,000,000 2,250,000 Reserves and surplus 20,000,000 Debentures (150000 debentures of Rs. 100 par, carrying 14 per cent interest) 15,000,000 14,500,000 Total 70,000,000 70,750,000 The expected dividend per share is Rs.1.20. The dividend per share is expected to grow at a rate of 7 per cent forever Preference shares are redeemable after five years, whereas debentures are redeemable after 6 years The tax rate for the company is 30 per cent. Calculate the weighted average cost of capital for the existing capital structure, using both book value and market value proportions as weights.
Capital Structure Book Value (Rs.) Market Value (Rs.) Equity capital (3 million shares of Rs. 10 par) 30,000,000 54,000,000 Preference capital (25000 shares of Rs.200 par, carrying 15 per cent dividend) 5,000,000 2,250,000 Reserves and surplus 20,000,000 Debentures (150000 debentures of Rs. 100 par, carrying 14 per cent interest) 15,000,000 14,500,000 Total 70,000,000 70,750,000 The expected dividend per share is Rs.1.20. The dividend per share is expected to grow at a rate of 7 per cent forever Preference shares are redeemable after five years, whereas debentures are redeemable after 6 years The tax rate for the company is 30 per cent. Calculate the weighted average cost of capital for the existing capital structure, using both book value and market value proportions as weights.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Capital Structure
Book Value (Rs.)
Market Value (Rs.)
Equity capital (3 million shares of Rs. 10 par)
30,000,000
54,000,000
Preference capital (25000 shares of Rs.200 par, carrying 15 per cent dividend)
5,000,000
2,250,000
Reserves and surplus
20,000,000
Debentures (150000 debentures of Rs. 100 par, carrying 14 per cent interest)
15,000,000
14,500,000
Total
70,000,000
70,750,000
The expected dividend per share is Rs.1.20. The dividend per share is expected to grow at a rate of 7 per cent forever Preference shares are
redeemable after five years, whereas debentures are redeemable after 6 years The tax rate for the company is 30 per cent.
Calculate the weighted average cost of capital for the existing capital structure, using both book value and market value proportions as weights.
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