Help me for solving this question-2

The Present Capital Structure of a company is as follows:

                                                                                                           Rs. (Million)

Equity Shares (Face Value = Rs.10)                                                    240

Reserves                                                                                              360

11% Pref. Shares (Face Value = Rs.10)                                             120

12% Debenture                                                                                   120

14% Term Loan                                                                                  360

                                                                          Total                            1200

Additional the following information is available:

Company's Equity beta = 1.06

Yield on long term treasury bonds = 10%

Stock market Risk Premium = 6%

Current ex-dividend equity share price = Rs.15

Current ex-dividend Pref. share price = Rs.12

Current ex-dividend debenture market value = Rs.102.50 per Rs.100

Corporate tax rate = 40%

The debenture are redeemable after 3 years and interest is paid annually.

Ignoring flotation costs, calculate the company's Weighted average cost of capital (WACC).

Replies (7)

 

Ko=Rf + beta(market risk premium)

ko=10 +1.06*6

Ko=16.36

Kd=(12(1-t)+100-102.5/2)/100+102.5/2

      =6.629

Kp=1.1*100/12=9.17

Kd=14(1-t)/100=8.4

WACC at MP

equity and reserves=240*15/10=360

pref.=120*12/10=144

deb=120*102.5/100=123

term loan=360

weights

360+144+123+360=987

 Eqiuty and reserve=360/987=.365

pref=144/987=.146

deb=123/987=.124

term loan =360/987=.365

so no u can calculate WACC 

cost*weights*mp

Thanks vivek

% Amount Cost WACC Equity 36.50% 360 16.36 5.97 Pref 14.60% 144 6.629 0.97 Deb 12.40% 123 9.17 1.14 Term Loan 36.50% 360 8.84 3.23 TOTAL 11.30
My pleasure :-)

vivek ur answer is superb

Originally posted by : sairam

vivek ur answer is superb

thanks -)

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