The following information has been extracted from the balance sheet of Surya Ltd.:

	₹ in Lacs
Equity Share Capital	900
12% Debentures	900
18% Term Loan	1,200
	3,000

(i) Determine the weighted average cost of capital (WACC) of the company. It had been paying dividends at a consistent rate of 25% per annum. Shares and Debentures are being traded at par. Tax rate is 40%.

(ii) What difference will it make if the current market price of the ₹ 1,000 share is ₹ 1,600?

Transcribed Image Text:

Potential Misstatements in the Revenue Cycle Read the overview below and complete the activities that follow. The revenue cycle is a major cycle for most companies. Accounts receivable, revenue, and other accounts are tested through this cycle. Often there are misstatements found, including errors and/or fraud by the client. CONCEPT REVIEW: It is important in testing any cycle, especially revenue, to realize that misstatements will occur and to try to distinguish between errors and fraud. 1. Many instances of misstatement are based on the inappropriate recognition of 2. One way to avoid misstatement of revenue is to ensure the client has proper Revenues are deemed to be earned when the company has what it must do to fulfill its 3. obligation. 4. Side can substantially alter the terms of a sale. 5. needs to be assured in order to recognize revenue. Potential Misstatements in the Revenue Cycle Read the overview below and complete the activities that follow. The revenue cycle is a major cycle for most companies. Accounts receivable, revenue, and other accounts are tested through this cycle. Often there are misstatements found, including errors and/or fraud by the client. CONCEPT REVIEW: It is important in testing any cycle, especially revenue, to realize that misstatements will occur and to try to distinguish between errors and fraud. 1. Many instances of misstatement are based on the inappropriate recognition of 2. One way to avoid misstatement of revenue is to ensure the client has proper Revenues are deemed to be earned when the company has what it must do to fulfill its 3. obligation. 4. Side can substantially alter the terms of a sale. 5. needs to be assured in order to recognize revenue.

Answer rating: 100% (QA)

i Deter mine the weighted average cost of capital W ACC of the company It had been paying dividends ... View the full answer