Question

10. The capital structure of J Ltd. is as under: 100.00.000 30.00.000 70 00.000 Equity shares 10 each 90 Preference Shares a 100 each 14 Debentures 100 each The markei price of these securities are: Equity Shares 35 per share Preference Share 120 per share Debentures 110 per debenture Other information are: (1) Equity shares have a floatation cost of 5 per share. The next years expected dividend is 3 with annual growth of 5. The company pays all earnings in the form of dividends. (ii) Preference Shares are redeemable at a premium of 10% have 2 fioatation cost and 10 year maturity (iii) Debentures are redeemable at par have 4 floatation and 10 per year maturity. (iv) Corporate tax rate is 30%. You are required to calculate the weighted average cost of capital using (1) book value weights and (ii) market value weights.​

Answer 1

Explanation:

Equity shares have a floatation cost of 5 per share. The next years expected dividend is 3 with annual growth of 5. The company pays all earnings in the form of dividends.