Weighted Average Cost of Capital(WACC) by book value & market value method

Sudhanshu (Assistant Manager at Union Bank of India)   (37 Points)

06 December 2020  

The following is the capital structure of Alpha Limited as on 31st March 2020
Equity Shares : 10000 shares ( of Rs 100 each) Rs 10,00,000
12% Preference Shares ( of Rs 100 each) Rs 10,00,000
10% Debentures Rs 12,00,000

The market price of the company’s share is Rs 120 and it is expected that a dividend of Rs 10 per share would be declared by the company . The dividend growth rate is 5%. If the tax rate is 30%, calculate Weighted Average Cost of Capital(WACC) by book value & market value method. Assume market value of Preference shares and Debentures to be same as the book value. Comment on the results.