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Solve the weighted average cost of capital for qr

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Reference no: EM132773041

QR & Co. has the following capital structure as on 31 Dec 2015.

Equity Share Capital (5000 shares of Rs 100 each) Rs 5,00,000

9% Preference Shares Rs 2,00,000

10% Debentures Rs 3,00,000

The equity shares of the company are quoted at Rs 102 and the company is expected to pay dividend of Rs 9 per share for the next year. The company has registered a dividend growth rate of 5%which is expected to be maintained.

Problem (i) Assuming the tax rate applicable to the company at 30%, calculate the weighted average cost of capital, and

Problem (ii) Assuming that the company can raise additional term loan at 12% for Rs 5,00,000 to finance its expansion, calculate the revised WACC. The company's expectation is that the business risk associated with new financing may bring down the market price from Rs 102 to Rs 96 per share.

Reference no: EM132773041

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