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Determine the pattern for raising additional finance

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Reference no: EM132929449

XYZ Ltd. wishes to raise finance of Rs. 10, 00,000 for meeting its investment plans. It has Rs. 240000 in form of Retained earnings.

The following details avail:

Debt/equity mix 30% / 70%
Earnings per share = Rs/ 4 Dividend payout: 50% of earnings
Cost of debt up to Rs. 1, 80,000- 10% before tax
beyond Rs 1,80,000-16% before tax
Expected growth of dividend 10%, current market price : Rs. 44 and Tax rate 50%

Problem 1: Calculate:

a) Determine the pattern for raising additional finance,
b) Determine the post-tax average cost
c) Cost of retained earnings
d) Cost of equity
e) Overall all Weighted Average Cost of capital

Reference no: EM132929449

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