Surya Ltd. has the following book value capital structure:

	Million (Rs.)
Equity Capital (10 million shares, Rs.10 par)	100
Preference Capital, 11% (100000 shares Rs.100)	10
Retained earnings	120
Debentures, 13.5% (500000 debentures Rs.100)	50
Term loans 12%	80
	360

The next expected dividend per share is Rs.1.50. The dividend per share is expected to grow at the rate of 7%. The market price per share is Rs.20. Preference stock, redeemable after 10 years is currently selling for Rs.75 per share. Debentures, redeemable after 6 years are selling for Rs.80 per debenture. The tax rate for the company is 50%.

Calculate the weighted average cost of capital using:

1. Book value proportions and

Market value proportions

Answer rating: 100% (QA)

To determine the weighted average cost of capital WACC we will first have to determine the proportion of capital that each component represents and th... View the full answer