800,8% Debentures of Rs.·1000 each issued at par Rs.800000 2000, 9% Preference shares of Rs. 100 each at par Rs.2,00,000 1,000, equity shares of Rs. 100 at par R~. 10,00,000 New debentures can be sold at par at 10% interest rate. preference shares will have a 12% dividend rate and can be sold at par. Equity shares can be sold, to net Rs. 90 per share. The shareholder's required rate of return is 8% which is expected to grow at 4%. Retained earnings for the year are estimated to be Rs. 1,00,000. The company is planning to expand its business accordingly and the company's tax rate is 50%. 

Determine the cost of each source of capital.

Answer rating: 100% (QA)

To calculate the cost of each source of capital we will use the following formulas Cost of debt interest payment net proceeds x 1 tax rate Cost of pre... View the full answer