Determine the pattern for raising additional finance

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Question - 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%

Required -

a) Determine the pattern for raising additional finance?

b) Determine the post-tax average cost?

c) Determine the cost of retained earnings?

d) Determine the cost of equity?

e) Determine the Overall all Weighted Average Cost of capital?

Reference no: EM133044132

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