JJ. 165. Surya Ltd. has the following book value capital structure:Million (Rs.)Equity Capital (10 million shares, Rs.10 par)Preference Capital, 11% (100000 shares Rs.100)Retained earningsDebentures, 13.5% (500000 debentures Rs.100) 50Term loans 12%8010010120360The next expected dividend per share is Rs.1.50. The dividend per share is expected to grow at the rate of 7%. The market price pershare is Rs.20. Preference stock, redeemable after 10 years is currently selling for Rs.75 per share. Debentures, redeemable after 6 yearsare selling for Rs.80 per debenture. The tax rate for the company is 50%.Calculate the weighted average cost of capital using:1. Book value proportions andMarket value proportions

Answered: 1. Book value proportions and Market…

Business

Finance

1. Book value proportions and Market value proportions

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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Question

JJ. 165.

Surya Ltd. has the following book value capital structure:
Million (Rs.)
Equity Capital (10 million shares, Rs.10 par)
Preference Capital, 11% (100000 shares Rs.100)
Retained earnings
Debentures, 13.5% (500000 debentures Rs.100) 50
Term loans 12%
80
100
10
120
360
The next expected dividend per share is Rs.1.50. The dividend per share is expected to grow at the rate of 7%. The market price per
share is Rs.20. Preference stock, redeemable after 10 years is currently selling for Rs.75 per share. Debentures, redeemable after 6 years
are selling for Rs.80 per debenture. The tax rate for the company is 50%.
Calculate the weighted average cost of capital using:
1. Book value proportions and
Market value proportions

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