Suntrack Ltd., a pharma company, was established in 1995 by Mr Ganpati, a renowned name in...

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Suntrack Ltd., a pharma company, was established in 1995 by Mr Ganpati, a renowned name in the medical profession. The company has one of the best research and developments facilities in the world and since its launch the company has already patented six products. Mr Ganpati's younger son Riteshwar has recently joined as the Director (Finance). Riteshwar is interested in modernizing the production facilities and for that company might be requiring Rs 100 crores. Before taking any decision, Riteshwar would like to know the existing cost of capital of the company. You are working as a General Manager (Finance) and Riteshwar tells you to meet him in the evening to have a discussion on the same. Existing Book Value Capital Structure Equity Capital (40 million shares, Rs 10 par) Preference Capital, 9% ( 1 million preference shares, Rs 100 par) Retained Earnings Rs. 150 million Debentures, 11% (2 million debentures, Rs 100 Rs. 200 million par) Term Loans, 12% Rs 400 million Rs 100 million Rs. 60 million Total Rs 910 million Additional information available: (a) Equity Capital: Next expected dividend is Rs 3 per share and dividend per share is expected to grow at rate of 4%. Current market price of share is Rs 30. (b) Preference Capital: Preference shares would be maturing at par after 7 years. Current market price of preference share is Rs 93. (c) Debentures: Debentures would be maturing at par after 4 years. Current market price of debenture is Rs 102. (d) Tax rate for the company is 30%. Suntrack Ltd., a pharma company, was established in 1995 by Mr Ganpati, a renowned name in the medical profession. The company has one of the best research and developments facilities in the world and since its launch the company has already patented six products. Mr Ganpati's younger son Riteshwar has recently joined as the Director (Finance). Riteshwar is interested in modernizing the production facilities and for that company might be requiring Rs 100 crores. Before taking any decision, Riteshwar would like to know the existing cost of capital of the company. You are working as a General Manager (Finance) and Riteshwar tells you to meet him in the evening to have a discussion on the same. Existing Book Value Capital Structure Equity Capital (40 million shares, Rs 10 par) Preference Capital, 9% ( 1 million preference shares, Rs 100 par) Retained Earnings Rs. 150 million Debentures, 11% (2 million debentures, Rs 100 Rs. 200 million par) Term Loans, 12% Rs 400 million Rs 100 million Rs. 60 million Total Rs 910 million Additional information available: (a) Equity Capital: Next expected dividend is Rs 3 per share and dividend per share is expected to grow at rate of 4%. Current market price of share is Rs 30. (b) Preference Capital: Preference shares would be maturing at par after 7 years. Current market price of preference share is Rs 93. (c) Debentures: Debentures would be maturing at par after 4 years. Current market price of debenture is Rs 102. (d) Tax rate for the company is 30%. Suntrack Ltd., a pharma company, was established in 1995 by Mr Ganpati, a renowned name in the medical profession. The company has one of the best research and developments facilities in the world and since its launch the company has already patented six products. Mr Ganpati's younger son Riteshwar has recently joined as the Director (Finance). Riteshwar is interested in modernizing the production facilities and for that company might be requiring Rs 100 crores. Before taking any decision, Riteshwar would like to know the existing cost of capital of the company. You are working as a General Manager (Finance) and Riteshwar tells you to meet him in the evening to have a discussion on the same. Existing Book Value Capital Structure Equity Capital (40 million shares, Rs 10 par) Preference Capital, 9% ( 1 million preference shares, Rs 100 par) Retained Earnings Rs. 150 million Debentures, 11% (2 million debentures, Rs 100 Rs. 200 million par) Term Loans, 12% Rs 400 million Rs 100 million Rs. 60 million Total Rs 910 million Additional information available: (a) Equity Capital: Next expected dividend is Rs 3 per share and dividend per share is expected to grow at rate of 4%. Current market price of share is Rs 30. (b) Preference Capital: Preference shares would be maturing at par after 7 years. Current market price of preference share is Rs 93. (c) Debentures: Debentures would be maturing at par after 4 years. Current market price of debenture is Rs 102. (d) Tax rate for the company is 30%.

Answer rating: 100% (QA)

To calculate the existing cost of capital weighted average cost of capital WACC for Suntrack Ltd well follow these steps 1 Calculate the cost of each ... View the full answer