Scribd
Upload
34 views

Q N A Set 3 Capital Structure Decisions

The document contains 9 questions related to calculating the cost of debt, cost of preference shares, cost of equity, and weighted average cost of capital (WACC) for different capital structure scenarios of companies. Multiple cases are provided for each question, varying factors like whether securities are issued at par, premium or discount, and the inclusion or exclusion of flotation costs. The questions provide the necessary financial information to calculate costs for different sources of capital and WACC.

Uploaded by

jollyfree
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
34 views

Q N A Set 3 Capital Structure Decisions

The document contains 9 questions related to calculating the cost of debt, cost of preference shares, cost of equity, and weighted average cost of capital (WACC) for different capital structure scenarios of companies. Multiple cases are provided for each question, varying factors like whether securities are issued at par, premium or discount, and the inclusion or exclusion of flotation costs. The questions provide the necessary financial information to calculate costs for different sources of capital and WACC.

Uploaded by

jollyfree
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Q n A SET 3 CAPITAL STRUCTURE DECISIONS

Q1. ILLUSTRATION 1-C.O.D.


Tulsian Ltd. Issued 10% debentures for Rs. 200000/-. Income tax rate is 40%. Calculate
cost of debt if;
a. If debentures are issued at par.
b. If debentures are issued at par with 5% flotation cost.
c. If debentures are issued at 10% discount with 5% flotation cost.
d. If debentures are issued at 10% premium with 5% flotation cost.
Q2. ILLUSTRATION 2-C.O.D.
Tulsian Ltd. Issued Rs. 100 Lakhs 12% debentures of Rs. 100/- each redeemable at par
after 5 years. Tax rate is 40%. Calculate COD in following cases;
a. If debentures are issued at par with no flotation cost
b. If debentures are issued at par with 5% flotation cost
c. If debentures are issued at 10% premium with 5% flotation cost
d. If debentures are issued at 10% discount with 5% flotation cost
Q3. ILLUSTRATION 3-C.O.P.
Tulsian Ltd. Issued Rs. 100 Lakhs 12% preference shares of Rs. 100/- each. Dividend Tax
is 20%. Calculate COP in following cases;
e. If preference shares are issued at par with no flotation cost
f. If preference shares are issued at par with 5% flotation cost
g. If preference shares are issued at 10% premium with 5% flotation cost
h. If preference shares are issued at 10% discount with 5% flotation cost
Q4. ILLUSTRATION 4-C.O.P.
Tulsian Ltd. Issued Rs. 100 Lakhs 12% preference shares of Rs. 100/- each redeemable at
par after 5 years . Dividend Tax is 20%. Calculate COP in following cases;
a. If preference shares are issued at par with no flotation cost
b. If preference shares are issued at par with 5% flotation cost
c. If preference shares are issued at 10% premium with 5% flotation cost
d. If preference shares are issued at 10% discount with 5% flotation cost
Q5. ILLUSTRATION 5-C.O.Equity
The Market price per share of equity capital of ABC ltd is Rs. 150/-. The expected
dividend is Rs. 15 per share & expected growth rate is 7% PA. what’s the Cost of Equity?
Q6. ILLUSTRATION 6- C.O.Equity
PCT Ltd is planning an equity issue in the current year. It has an EPS of Rs. 20/- with a P/E
ratio of 6.25. Find cost of capital.
Q7. ILLUSTRATION 7- C.O.Equity
CMP equity share= Rs. 100/- Expected EPS= Rs. 10/- DP ratio= 80% Growth rate= 6%
Rate of return on risk free investment= 8% Rate of return on market portfolio= 18%
Q8. ILLUSTRATION 8-WACC
A company has following long term capital outstanding as on 31/03/19;
• 10% debentures of face value Rs. 500000/- (Rs. 1000/- each) redemption- 10
years.
• Preference shares with face value Rs. 400000/- annual dividend @ 12%,
redemption- 10 years.
• 60000 equity shares @ Rs. 10/- each, CMP Rs. 50/- per share & growth rate 12%.
DPS Rs. 7/-
• Tax rate @ 40%
Calculate Weighted average cost of capital (WACC)
Q9. ILLUSTRATION 9-WACC
A company has following specific cost of capital with the indicated book value & market
value weights;

Type Cost BV Weight MV Weight

Equity 18% 0.40 0.58

Preference 15% 0.30 0.17

L T Debt 7% 0.30 0.25

Calculate;
• WACC as per Book Value weight & as per market value weight
• Revised WACC, if company intends to raise funds by using 50% long term debt,
35% preference shares & 15% via retained earnings

You might also like