Narottam Ltd has 11% debentures (Rs 1000/- face value) worth Rs 800 Cr outstanding. These debentures are due to be redeemed in another 4 years and are trading at Rs 970/- currently. The firm also has issued 11.2 crore shares (FV Rs 10/- each) having market capitalisation of Rs 1025 crores. Assuming that investors expect a return of 18% on firms of similar risk profile, calculate the overall cost of capital for Narottam Ltd. Consider corporate tax rate at 25% and risk-free rate of 6%.

Answer rating: 100% (QA)

To calculate the overall cost of capital for Narottam Ltd we need to consider the cost of debt and the cost of equity weighted by their respective pro... View the full answer