Debt 25% Preference Shares 15% Equity shares 60% Total 100% Applicable tax rate for CPIL is 25%. and investors expect earnings and dividends to grow at a constant rate of 9% in the future. Risk free rate of return is 6%, average equity share has expected rate of return of 15%. CPIL’s beta is 1.50. Following terms would apply to new securities being issued as follows: New preference can be issued at a face value of Rs. 100 per share, dividend and cost of issuance will be Rs. 8 per share and Rs. 4 per share respectively. Debt will bear an interest rate of 10%. Calculate Component cost of debt, preference shares and equity shares assuming that CPIL does not issue any additional equity shares. WACC.
- CP India Ltd has the following capital structure, which it considers optimal:
Debt 25%
Equity shares 60%
Total 100%
Applicable tax rate for CPIL is 25%. and investors expect earnings and dividends to grow at a constant rate of 9% in the future. Risk free
share has expected rate of return of 15%. CPIL’s beta is 1.50. Following terms would apply to new securities being issued as follows:
- New preference can be issued at a face value of Rs. 100 per share, dividend and cost of issuance will be Rs. 8 per share and Rs. 4 per share respectively.
- Debt will bear an interest rate of 10%.
Calculate
- Component cost of debt, preference shares and equity shares assuming that CPIL does not issue any additional equity shares.
- WACC.
Question 2.
2. Assume that your father is now 50 years old and plans to retire after 10 years from now. He is expected to live for another 25 years after retirement. He wants a fixed retirement income of Rs. 5,00,000 per annum. His retirement income will begin the day he retires, 10 years from today, and then he will get 24 additional payments annually. Your father has current savings of Rs. 10,00,000 and he expects to earn a return on his savings @ 10% p.a., annually compounding. How much (to the nearest of rupee) must your father save during each of next 10 years to meet his retirement goal?
ABC Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows:
|
Expected Cash Flows |
||
|
Year |
Project A |
Project B |
|
0 |
-375 |
-575 |
|
1 |
-300 |
190 |
|
2 |
-200 |
190 |
|
3 |
-100 |
190 |
|
4 |
600 |
190 |
|
5 |
600 |
190 |
|
6 |
926 |
190 |
|
7 |
-200 |
0 |
If you were told that each project’s cost of capital was 12%, which project should be selected using the
Step by step
Solved in 2 steps
