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Compute weighted average cost of capital using book value

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Kenstar electronics Ltd. issues 1 lakh preference shares at 12% dividend paid annually. They are issued at face value of Rs.100 which shall be redeemed at par after 10 years. The preference shares are currently priced at Rs.88 per share. The company also has issued 1 lakh debentures for 6 years paying 11% coupon with a par value of Rs.100. The debentures are redeemed at par and are currently traded at Rs.90. The equity capital comprises of 50 lakh shares (Rs.10 face value) selling at Rs.75 per share having expected to pay a dividend of Rs.8 per share. The dividends are expected to grow at a constant rate of 6% perpetually. The company has existing retained earnings worth Rs.250 lakh. The tax rate for the company is 35%.

Question 1: On the basis of the information provided, you are required to compute the weighted average cost of capital using: a.Book value proportions b.Market value proportions

Reference no: EM132597715

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