Priya Steel Limited has capital employed of Rs. 100 crore whose market value is 150 crore...

   

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Priya Steel Limited has capital employed of Rs. 100 crore whose market value is 150 crore as shown in the following table. Source of Fund (in Crores) Equity Shares Retained Earnings Preference Shares Debentures Book Values 30 45 7 6 14 Total 150 The firm paid dividend of Rs. 20 during last year, which has been growing at 8 percent. It also pays income tax at 35 per cent. Following further information is available in respect of various source of fund. Equity Shares: fresh shares can be issued at a price of Rs. 220 per share with a . Market Values 130 18 100- flotation cost of 4 per cent. Debentures: fresh debentures can be issued with following features. Redemption Value Coupon Rate 12% p.a. Face Value Rs. 100 Time to Maturity Flotation Cost Issue Price Rs. 95 Preference Shares: new preference shares can be issued as follows Flotation Cost Dividend 15% p.a. Rs. 100 Issue Price Face Value Calculate WACC based on book values. Rs. 100 15 Years 1.50% 2% Rs. 110 Priya Steel Limited has capital employed of Rs. 100 crore whose market value is 150 crore as shown in the following table. Source of Fund (in Crores) Equity Shares Retained Earnings Preference Shares Debentures Book Values 30 45 7 6 14 Total 150 The firm paid dividend of Rs. 20 during last year, which has been growing at 8 percent. It also pays income tax at 35 per cent. Following further information is available in respect of various source of fund. Equity Shares: fresh shares can be issued at a price of Rs. 220 per share with a . Market Values 130 18 100- flotation cost of 4 per cent. Debentures: fresh debentures can be issued with following features. Redemption Value Coupon Rate 12% p.a. Face Value Rs. 100 Time to Maturity Flotation Cost Issue Price Rs. 95 Preference Shares: new preference shares can be issued as follows Flotation Cost Dividend 15% p.a. Rs. 100 Issue Price Face Value Calculate WACC based on book values. Rs. 100 15 Years 1.50% 2% Rs. 110

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To calculate the weighted average cost of capital WACC based on book values we need to determine the cost of each source of fund and its respective weight in the firms capital structure We will calcul... View the full answer