Cost Of Capital PDF

Cost of Capital 1. Following are the details of two companies Unibic and Dark Fantasy. Unibic Dark Fantasy Sources of Cost of Cost of Finance...

Cost of Capital 1. Following are the details of two companies Unibic and Dark Fantasy. Unibic Dark Fantasy Sources of Cost of Cost of Finance Amount Amount Capital Capital Equity Capital 3,00,000 15% 4,50,000 15% Retained Earnings 1,20,000 11% 1,00,000 13% Preference Share 80,000 8% 1,00,000 11% Debentures 1,00,000 6.3% 3,50,000 7.5% Calculate WACC of both the companies. 2. Tara Ltd. issued Rs. 100 lakhs; 12% Debentures of Rs. 100 each. The corporate tax rate is 40%. Calculate the cost of Debt in each of the following cases: Case a: If Debentures are issued at par with 5% floatation cost on issue price. Case b: If Debentures are issued at 10% premium with 5% floatation cost on issue price. Case c: If Debentures are issued at 10% discount with 5% floatation cost on issue price. 3. The following are the details relating to the capital structure of Oreo Ltd. Book Value Market Value Specific Cost Particulars (Rs.) (Rs.) (%) Equity Capital 90,000 1,80,000 14% Retained Earnings 30,000 - 13% Preference Share 20,000 20,000 10% Debentures 60,000 60,000 5% You are required to calculate the weighted average cost of capital, using a. Book Weights b. Market Weights 4. Bounty Ltd. has the following capital Structure as on 31st March, 2018: Particulars Rs. Equity Capital of Rs. 100 each 5,00,000 9% Preference Share 2,00,000 10% Debentures 3,00,000 Total 10,00,000 The equity share of the company are quoted at rs. 102 and the company is expected a dividend of Rs. 9 per share for the year. Required: a) Assuming the tax rate applicable to the company to be 50%, calculate the cost of capital. b) Assuming that the company can raise additional term loan at 12% for Rs. 5,00,000 to finance an expansion, calculate the revised weighted cost of capital. The company’s assessment is that it will be in position to increase the dividend from Rs. 9 per share to Rs. 10 per share, but the business risk associated with new financing may bring down the market price from Rs. 102 to Rs. 96 per share. 5. A firm has the following capital structure and after-tax costs for the different sources of funds used: Source of Funds Amount Rs. Proportion % After tax cost % Debt 40,00,000 20% 4.50% Preference Shares 20,00,000 10% 9.00% Equity Shares 60,00,000 30% 11.00% Retained Earnings 80,00,000 40% 10.00% Total 2,00,00,000 100% Calculate the cost of weighted capital by using the book value method. 6. A company has on its books the following amounts and specific cost of each type of capital. Type of Capital Book Value (₹) Market Value (₹) Specific Cost (%) Debt 4,00,000 3,80,000 5 Preference 1,00,000 1,10,000 8 Equity 6,00,000 9,00,000 15 Retained Earnings 2,00,000 3,00,000 13 13,00,000 16,90,000 7. Hindustan Chemicals Ltd. has paid up equity capital of 6,00,000 equity shares of Rs. 10 each. The current market price of the share is Rs. 24. During the current year, the company has declared a dividend of Rs. 6 per share. The company has also previously issued 14% preference shares of Rs. 10 each aggregating Rs. 30 lakhs and 13% 50,000 debentures of Rs. 100 each. The company’s corporate tax rate is at 40%, the growth in dividends on equity shares is expected at 5%. In the case of preference shares, the company has received only 95% of the face value of shares after deducting issue expenses. Calculate WACC of the Company.