Siyaram Ltd. has the following capital structure: Equity share capital (200000 shares) 6% Preference shares 8%...
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Siyaram Ltd. has the following capital structure: Equity share capital (200000 shares) 6% Preference shares 8% Debentures Rs.40,00,000 Rs.10,00,000 Rs.30,00,000 Rs.80,00,000 The market price of the company's equity share is Rs.20. It is expected that company will pay a dividend of Rs.2 per share at the end of current year, which grow at 7% for ever. The tax rate may be presumed at 50%. You are required to compute the following: a) Weighted average cost of capital based on existing capital structure. b) The new weighted average cost of capital, if the company raises an additional Rs.20,00,000 debt by issuing 10 percent debentures. This would result in increasing the expected dividend to Rs.3 and leave the growth unchanged but the price of share will fall to Rs.15 per share. c) The cost of capital if in (b) above, growth rate increases to 10 percent. Siyaram Ltd. has the following capital structure: Equity share capital (200000 shares) 6% Preference shares 8% Debentures Rs.40,00,000 Rs.10,00,000 Rs.30,00,000 Rs.80,00,000 The market price of the company's equity share is Rs.20. It is expected that company will pay a dividend of Rs.2 per share at the end of current year, which grow at 7% for ever. The tax rate may be presumed at 50%. You are required to compute the following: a) Weighted average cost of capital based on existing capital structure. b) The new weighted average cost of capital, if the company raises an additional Rs.20,00,000 debt by issuing 10 percent debentures. This would result in increasing the expected dividend to Rs.3 and leave the growth unchanged but the price of share will fall to Rs.15 per share. c) The cost of capital if in (b) above, growth rate increases to 10 percent.
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a Weighted Average Cost of Capital based on existing capital structure Equity Cost of Equity Dividen... View the full answer
Related Book For
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
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