3)The following items have been extracted from the ‘Liabilities’ side of the balance sheet of XYZ company as on 31 December 2010:
Paid up Capital: 4,00,000 Equity shares of Rs 10 each 40,00,000
Reserves and Surplus 60,00,000
Loans:
15% Non- Convertible Debentures 20,00,000
14% Institutional Loans 60,00,000
Other information about the company as relevant is given below:
Year ended Dividend Earnings Average market
31st Dec per share per share price per share
(Rs) (Rs) (Rs)
2010 4.00 7.50 50.00
2009 3.00 6.00 40.00
2008 4.00 4.50 30.00
You are required to calculate the weighted average cost of capital, using book values as weights and Earnings/price (E/P) ratio as the basis of cost of equity. Assume 50% tax rate.
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