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Cost Ofcapital Numericals
Cost Ofcapital Numericals
Ans. (a) Kp after tax = 9.27%, Before tax Kp= 13.24% (b) Kp after
tax= 9.78%, Before tax Kp = 13.97% (c) Kp after tax = 8.73%,
Before tax Kp= 12.47%
Q.3 Y Ltd. issues 50,000 10% preference shares of Rs. 100 each
redeemable after 10 years at a premium of 5%. The cost of issue is Rs.2
per share. Calculate cost of preference share capital. Assume corporate tax
rate of 30%.
Ans. Ke = 15.65%
In case of existing equity shares, market price Rs. 21 is to be taken as basis for
calculation of cost of equity capital, what will be the Ke?
Ans. 8.57%.
Q.2 A company issues 5,00,000 equity shares of Rs. 10 each and has earned a profit of
Rs. 6,00,000 after tax. If the market price of these shares is Rs. 16 per share, calculate
cost of equity capital.
Q.3 A Ltd. has issued 2,000 equity shares of Rs. 100 each as fully paid. The company
has earned a profit of Rs. 20,000 after tax. The market price of these shares is Rs. 160
per share. On these shares dividend of Rs. 8 per share has been paid. Calculate cost of
equity capital using (i) D/Y method and (ii) E/Y method.
Ans. D/Y method Ke = 5%, E/Y Method ke = 6.25%.
Q.4 The present market price of a company’s equity share is Rs. 60 and dividend paid
for the previous year is Rs. 4.50. If 8% growth rate in the dividend is expected,
calculate cost of equity capital.
Ans. 16.1%.
Q.5 XYZ Ltd. has its share of Rs. 10 each quoted on the stock exchange, the current
price per share is Rs. 24. The dividends per share over the last four years have been
Rs. 1.20, Rs. 1.32, Rs. 1.45, and Rs. 1.60. Calculate the cost of equity shares.
Ans. 17.33%
Q.1 Calculate cost of retained earnings if Ke is 12%, personal income tax rate is 22%
and brokerage rate is 1%.
Ans. Kr = 9.27%
Q.2 Find out cost of retained earnings from the following data:
DPS: Rs. 15
Ans. 9.45%
Q.3 Find out cost of Retained Earnings from the following information: (Rights Offer
Approach)
DPS: Rs. 9
Ans. 7.87%
Q.4 Calculate the cost of retained earnings from the following information:
Brokerage: 3%
Ans. 11.35%
Q.1 Following information is available with regard to the capital structure of ABC Ltd.
Additional Information: The debentures are trading at 94%, preference shares at par and equity
shares at Rs. 13.50 per share.
Find out the weighted average cost of capital based on market value weights.
Ans. 8.6%
Q.3 Calculate weighted average cost of capital from the following information:
Additional Information: Market price of per share of ABC Ltd. is Rs. 60 and earning per share is
Rs. 6. The expected growth rate of earnings is 5% per annum. Cost of debt (before tax) is 12%
per annum. Applicable corporate tax rate is 40%. Use market value weights and show your
workings.
Ans. 13.8%
For the year ended 31.3. 2018, the company has paid equity dividend at 20%. As the company
is a market leader with good future, dividend is likely to grow by 5% every year. The equity
shares are now traded at Rs. 80 per share on the stock exchange. Income tax rate is 50%.
(i) Compute current weighted average cost of capital using book value weights.
(ii) The company has plans to raise a further Rs. 5 crores by way of long term loan at 16%
interest. It will result into fall of market value of equity shares to Rs. 50 per share. What will be
the new weighted average cost of capital of the company?
The earnings per share of the company in the past years have been Rs. 15. The shares of the
company are sold in the market at book value. The company’s tax rate is 50% and
shareholders’ personal tax liability is 10%. Find out the weighted average cost of capital.
Ans. 8.43%