PTCL has the following capital structure, which it consider to be optimal : debt =25%, preferred stock= 15%, common stock= 60%. PTCLs tax rate is 40%, and investors expect earnings and dividends to grow at a constant rate of 6% in the future. PTCL paid a dividend of Rs. 3.70 per share last year, and its stock currently sells at a price of Rs. 60 per share. Ten-year treasury bonds yield 6% the market risk premium is 5%, and PTCLs beta is 1.3. The following terms would apply to new security offerings. Preferred: New preferred could be sold to the public at a price of Rs 100 per share, with a dividend of Rs 9. Flotation costs of Rs 5 per share would be incurred. Debt: Debt could be sold at an interest rate of 9%. Common: New Common equity will be raised only by retaining earnings. On the basis of above given data you are required to calculate the following Find component costs of debt, preferred stock and common stock. Calculate the weighted average cost of capital.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
PTCL has the following capital structure, which it consider to be optimal : debt =25%,
Preferred: New preferred could be sold to the public at a price of Rs 100 per share, with a dividend of Rs 9. Flotation costs of Rs 5 per share would be incurred.
Debt: Debt could be sold at an interest rate of 9%.
Common: New Common equity will be raised only by
On the basis of above given data you are required to calculate the following
Find component costs of debt, preferred stock and common stock.
Calculate the weighted average cost of capital.
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