Calculate the cost of capital of organization, Financial Management

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The following particulars relate to ABC Ltd. at the end of 2008:

(i) Rs. 500,000 equity shares of Rs. 10 each. Present dividend per share is Rs. 15; Market price Rs. 100 per share. Growth rate in dividend 5 per cent.

(ii) Retained earnings - Rs. 200,000.

(iii) 8% Rs. 500,000 preference shares of Rs. 50 each issued at a discount of 5%.

(iv) Debentures of Rs. 1,000 each, repayable at par in 2012, were issued as follows:

Type A: 200 A debenture of 13 per cent issued at a premium of 10 per cent.

Type B: 100 B debentures of 10 per cent issued at a premium of 10 per cent.

(v) 11% term-loan of Rs. 500,000. ABC Ltd. received the entire proceeds of the loan.

Assuming that ABC Ltd. is in a 50 per cent tax bracket and that it uses book values as weights, calculate the overall cost of capital of ABC Ltd.

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