.1. Kamani Ltd. is planning torais
y the issu
noo each at 10% discount. The underw ri tmg expenses are
nd out the cost of debenhues in each of the following cases
I. H debentmes are irredeemable.
IT. If debentures are redeemable at
10111 year a
,\(p ::
D( \ +CDT) 'RV-NP
N
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Q. 2. Keenam Ltd. is planning to raise n crore by the issue o 12% preferen
shares of noo each at 10'1/o discount. The underwriting expenses arc expecte
to be 2%. Finclout the cost of preference share capital in each of the following
.,,--
If p reference shares are ined eema b le
.!f...P.refer~n,f! shares are redeemable at the end
premium. Use short-cut method .
~
ey:,it 15%
'
(2009 E)
Q. 3. Calculate the Cost of
(1) A com an isst1e 10
r cent irredeemable preference shares at ~95
each (face value :. U0O) .
(i1) The cuuent market price of a share is Z90 and the expected dividend at
•11t end_o.filig gm:t..n t year is Z4.5 with a growth rate of 8At,cent.
,, rornp any issue~ U0,00,000© er cent debentures of~
each at 10
per cent discount. The debentures are redeemable after the expiry of
fixed period o£_7 ~ s. The company is in 35 per cent tax bracket.
-
12-(1 - 0 3s +IC,\)-90
1-
Assumin that the firm
ate, compute the
after tax cost of capi tal in the following cases :.
( i) A 14.596 preference shares sold at par. ( f:V ' JI,()
!) , A perpetual bond sold at par, coupon rate bein 13.5%.
0Jcn ye~( si);>r,ooo per bond sold at 950. (Np q,5q) '
(i11) A common share selling at a market price of ~
and ..
paying a current dividen o
9 er share which is;
. expecte to grow at a rate 896 - .»D, As,s14m2 '·•~
, (ii0
I .1
.
- 'Dv
<s ,
,,,'\
l£::]/ I~96 Preference Shares of I00 each, issued
,,,~~
· m, red eemable a t par after 6 years. Flolat1on cost 1s ·,
and Dividend Distribution Tax i 15, . Use both '
hod. .
·
~ ! 2 96 Debentures of fac e value oft!O00 each redeemable';~
· at par after 5 years, flotation cost bei~
Use both ·, ·
methods given the tax rat @30 .
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• :
Esc..
?SC
Deb -
I
't '
.. .
C-'..-.
\
b-ft\C\_"'- COS.-+ f- 'MraJ1A.cA~OL 0·15 r.looooo IN AC<- =- z._~I
2oL O· I
-EioL
O·O:t-
z..
2000<:P
,41..0000
--
, lboL
1~2..oow
co m pan y has the following capital structun:: on 1 July
20 1S:
f-,wtd .,\\
Equity Shares (4,00,000)
I096 Preference
20,00,000
(l~ De~entures
60,00,000
1¤ 2 v<J <A? X11.Q
f6o
1
'j
00000
l \·3-=1-5'1/o
.
a:\' ~ '' '
ro
-=-
1,60,00,000
e o[ a com
It is expected
company_-'-,:;..;.."'----share which
at 7 per cent forever . Assume a 3_Qf~nt tax rate.
',
_01;1r company s s / , 'i
, , . .,,, ,, ,
,,,
, at :
l 20 cur
rently. The compauy}{aslp'aidld'i-vid~n~,' ',
t share and th
investor's market expects a growth
o,f 5 per cent per year
•
'
I 11!
,l 11 1
\!1 1 iii
You are ~equired to compute :
·r~te
~ It. 1 ' 1
1
1
1
'' •\' :~\ ·,
/\
I1 '
11n1
, ,I,,
\,•' • " .. · ·,
1\ ,11
\ .1,
1) The company's Equity Cost of Ca~:ital:~
i0 If
'
·
the company's cost of capital is 8 per cent and the
anticipated growth rate is 5 per cent per annum, calculate
market price if the dividend of~ 1 is to be paid at the end
of one year.
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