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.
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