The management of a company is considering a proposal which will need additional finance of Rs 10 Lakh. It has Rs.2 Lakh as retained earning.
Further details are given below:
Debt - Equity Mix 40%: 60%
Cost of Debt 12% before tax
Dividend per share Rs.4/-
Expected growth rate in Dividend 10%
Current Market Price share
Rs. 80/-
Tax Rate 50%
You are required to:
1). Show the pattern of expected fund after additional finance.
2).Calculate after tax cost of debt
3).Calculated cost of retained earning and Equity
Calculate WACC for additional Finance.
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Answer:
It has Rs.2 Lakh as retained earning. ... a proposal which will need additional finance of Rs 10 Lakh. ... Further details are given below: Debt - Equity Mix 40 %: 60%
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