Please help!! Help!!! Help!!!!

others 382 views 1 replies

 

please solve the following question:

 

Y Ltd. retains Rs. 7,50,000 out of its current earning. The expected rate of return to the shareholders. If they

had invested the funds elsewhere is 10%. The brokerage is 3% and the shareholders came in 30% tax bracket.

Calculate the cost of retained earning.

 

Replies (1)

I think it should be like this

Kr = Ke (1-t) (1-b)

 

Where Kr =  Cost of retained Earnings

             Ke = Expected rate or return to shareholder

             t = tax rate                                        b= brokerage cost

 

 

Kr = 10% (1-0.3) (1-0.03)

 

Hence Kr = 6.79% (Apply this cost to 7,50,000)

 

Plz verify the answer, if available.

 


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