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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 |
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had invested the funds elsewhere is 10%. The brokerage is 3% and the shareholders came in 30% tax bracket. |
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Calculate the cost of retained earning. |
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.
BHUPINDER SHAH AND COMPANY
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