PLtd. has the following capital structure at book-value as on 31st March, 2020: Particulars (15)...
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PLtd. has the following capital structure at book-value as on 31st March, 2020: Particulars (15) Equity share capital (10,00,000 shares ) 30/- 3,00,00,000 11.5% Preference shares 60,00,000 10% Debentures 1,00,00,000 4,60,00,000 The equity shares of the company are sold for 300. It is expected that the company will pay next year a dividend of 15 per equity share, which is expected to grow by 5% p.a. forever. Assume a 35% corporate tax rate. Required: (i) COMPUTE weighted average cost of capital (WACC) of the company based on the existing capital structure. (ii) COMPUTE the new WACC, if the company raises an additional * 50 lakhs debt by issuing 12% debentures. This would result in increasing the expected equity dividend to 20 and leave the growth rate unchanged, but the price of equity share will fall to 250 per share
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