Calculate weighted average cost of capital by book value

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Question - The following is the capital structure of Alpha Limited as on 31st March 2020

Equity Shares: 10000 shares (of Rs 100 each) = Rs 10,00,000

12% Preference Shares (of Rs 100 each) = Rs 10,00,000

10% Debentures = Rs 12,00,000

The market price of the company's share is Rs 120 and it is expected that a dividend of Rs 10 per share would be declared by the company. The dividend growth rate is 5%. If the tax rate is 30%, calculate Weighted Average Cost of Capital(WACC) by book value & market value method. Assume market value of Preference shares and Debentures to be same as the book value. Comment on the results.

Reference no: EM132764283

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