Masco Limited wishes to raise additional finance of 10 lakhs for meeting its investment plans....
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Masco Limited wishes to raise additional finance of 10 lakhs for meeting its investment plans. It has *2,10,000 in the form of retained earnings available for investment purposes. Further details are as following: (1) Debt/ equity mix (2) Cost of debt Upto 1,80,000 Beyond 1,80,000 (3) Earnings per share (4) Dividend pay out (5) Expected growth rate in dividend (6) Current market price per share (7) Tax rate 3:7 10% (before tax) 16% (before tax) *4 50% of earnings 10% *44 50% You are required: (a) TO DETERMINE the pattern for raising the additional finance. (b) TO DETERMINE the post-tax average cost of additional debt. (c) TO DETERMINE the cost of retained earnings and cost of equity, and (d) COMPUTE the overall weighted average after tax cost of additional finance
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