Aries Limited wishes to raise additional finance of Rs 10 lakh for meeting its investment plans....
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Aries Limited wishes to raise additional finance of Rs 10 lakh for meeting its investment plans. It has Rs 2,10,000 in the form of retained earnings available for investment purposes. The following are the further details: 1. Debt-equity mix, 30:70 2. Cost of debt: Upto Rs 1,80,000, 10 per cent (before tax); Beyond Rs 1,80,000, 16 per cent (before tax) 3. Earnings per share, Rs 4 4. Dividend payout, 50 per cent of earnings 5. Expected growth rate in dividend, 10 per cent 6. Current market price per share, Rs 44 7. Tax rate, 35 per cent You are required: (a) To determine the pattern for raising the additional finance, assuming the firm intends to maintain existing debt/ equity mix. (b) To determine the post-tax average cost of additional debt. (c) To determine the cost of retained earnings and cost of equity. (d) Compute the overall weighted average after tax cost of additional finance. Aries Limited wishes to raise additional finance of Rs 10 lakh for meeting its investment plans. It has Rs 2,10,000 in the form of retained earnings available for investment purposes. The following are the further details: 1. Debt-equity mix, 30:70 2. Cost of debt: Upto Rs 1,80,000, 10 per cent (before tax); Beyond Rs 1,80,000, 16 per cent (before tax) 3. Earnings per share, Rs 4 4. Dividend payout, 50 per cent of earnings 5. Expected growth rate in dividend, 10 per cent 6. Current market price per share, Rs 44 7. Tax rate, 35 per cent You are required: (a) To determine the pattern for raising the additional finance, assuming the firm intends to maintain existing debt/ equity mix. (b) To determine the post-tax average cost of additional debt. (c) To determine the cost of retained earnings and cost of equity. (d) Compute the overall weighted average after tax cost of additional finance.
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a Pattern for raising the additional finance Equity 70 of Rs1000000 Rs700000 Debt 30 of Rs1000000 Rs... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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