Unit-II-Cost of capital

Cost of capital
Meaning

The minimum rate of return the firm should earn at

least keep the value of the firm unchanged.
Return – 20 % Return -15%
Cost – 15% Cost -16%

Equity – Cost of Equity – Dividend

Preference – Cost of Preference Capital – Pref. Dividend
Debentures - Cost of Debt – Interest
Long term Loan- Cost of debt – Interest
Cost of capital
Importance of Cost of Capital

Capital Budgeting Decisions:

hurdle rate or discount rate is the decision criteria.
Capital Structure Decisions:
To maximize the wealth maximize
overall cost of capital (or ) EPS
Cost of Capital
Overall Cost of Capital (Ko)

Combination of all specific cost of all sources of funds is called as

overall cost of capital.

Ko= Ke+Kp+Kd
Cost of Capital
Overall Cost of Capital (Ko)

Ko= Ke+Kp+Kd

Ko- Overall cost of capital

Ke- Cost of equity
Kp- Cost of Preference share capital
Kd- Cost of Debt.
Cost of Capital
Components of Cost of Capital

K=ro + b + f

K- Cost of Capital
ro- Risk free rate of return- RBI – Treasury bond Rate
b- premium for the business risk
f- Premium for the financial risk
Cost of Capital
Overall Cost of Capital (Ko)

Sum: A company s cost of capital was 15% in 2019 . According to the

management , this consisted of 8% due to riskless cost of money, 3%
business risk premium and 4% for financial risk premium. The company
intends to issue new equity shares in 2020. You are required to determine
the cost of equity capital in each of the following cases:
a) In 2020 the riskless cost of money goes up by 1%. Of course , the
financial and business risk remain unchanged.
b) Besides increase in the riskless cost of money by 1% , the business risk
increases by 50% on account of the company ‘s undertaking a new line of
production .
c) A Competitor of the firm has 9% riskless cost of money , 3% business risk
and only 1% as financial risk , since he has paid all long-term debts in 2019
Cost of Capital
Overall Cost of Capital (Ko)

Solution
Ko= 15%= 8%+3%+4%

a) Ko= 9%+3%+4%=16%

b) Ko= 9%+4.5%+4%=17.5%

c) Ko= 9%+3%+1%= 13%

 Cost of Capital
Computation of Cost of Debt (Kd)
Two Methods
1) Cost of Irredeemable Debt
Irredeemable debt is debt that has no specific redemption
date or maturity period. The issuing authority or entity
pays a specified interest rate periodically but provides no
data on when principal will be returned. In many cases the
principal is never paid
2) Cost of Redeemable Debt
Redeemable debts are those which will be repaid to
the suppliers of debt after a specific period.
Cost of Capital
Computation of Cost of Debt (Kd)

1) Cost of Irredeemable Debt

Kd= I/NP ( 1-T)

Kd- Cost of Debt

I- Amount of Interest
NP-Net Proceeds= Par Value+/- Premium / Discount- Flotation cost
T- tax rate
Cost of Capital
Computation of Cost of Debt (Kd)

Sum:1: a company issues 10% irredeemable debentures of

Rs 1,00,000. Company is in the 55% tax bracket. Calculate the
cost of debt (before as well as after tax) if the debentures
are issued at
i) Par ,
ii) 10% discount and
iii) 10 % premium.
Computation of Cost of Debt (Kd)
Cost of Debt Issued at Par

Cost of Debt before tax ( kd)

i) Issued at Par :
I- Rs10,000, NP- Rs1,00,000
= 10,000/1,00,000= 0.10 or 10%

Cost of debt after tax

Kd= R(1-t)
= 10(1-.55)=4.5%
Computation of Cost of Debt (Kd)
Cost of Debt before tax when Issued at 10% discount

ii) Cost of Debt before tax when Issued at 10% discount

I- Rs10,000
NP- 1,00,000-10% of 1,00,000=90,000

=10,000/90,000=0.11 or 11%
Cost of debt after tax
Kd= R(1-t)
= 11(1-.55)=4.95%
Computation of Cost of Debt (Kd)

Cost of Debt before tax when Issued at 10% Premium

iii) Cost of Debt before tax when Issued at 10% Premium
I- Rs10,000
NP- 1,00,000+10% of 1,00,000=1,10,000

=10,000/1,10,000=0.0909 or 9.1%

Cost of debt after tax

Kd= R(1-t)
= 9.1(1-.55)=4.095%
Sum:1: a company issues 10% irredeemable debentures of Rs 1,00,000.
Company is in the 30% tax bracket. Calculate the cost of debt (before as
well as after tax) if the debentures are issued at
i) Par, ii) 5% discount and iii) 5 % premium.
Cost of Capital
Cost of Redeemable Debt(kd)

Kd= I+(P-NP)/n
(P+NP)/2
I – Amount of Interest
P-Par value of debt
NP-Net Proceeds= Par Value+/- Premium / Discount- Flotation cost
N- Number of years to maturity
Cost of Capital
Cost of Redeemable Debt(kd)

Sum:2: A firm issues debentures of Rs:100000 and after

allowing 2% commission to brokers . The debentures
carry an interest rate of 10%. The debentures are due
for maturity at the end of the 10th year. You are required
to calculate the effective cost of debt before tax and
after tax if the debentures are issued at
i) Par ,
ii) 10% discount and
iii) 10 % premium.
Cost of Capital
Cost of Redeemable Debt(kd)
i) Cost of Debt before tax ( kd) issued at par
I – Rs10,000
P-Rs1,00,000
NP-Rs1,00,000-(2% on 1,00,000) =98,000
N- 10 years

Cost of debt before tax = 10,000+(1,00,000-98,000)/10 =10.30 %

(1,00,000+98,000)/2

Cost of debt after tax

Kd= R(1-t)
= 10.30(1-.50)=5.15%
Cost of Capital
Cost of Redeemable Debt(kd)

ii) Cost of Debt before tax ( kd) issued at 10% discount:

I – Rs10,000
P-Rs1,00,000
NP-Rs1,00,000-(10% on 1,00,000)-(2% of 90,000)=88,200
N- 10 years
Cost of debt before tax = 10,000+(1,00,000-88,200)/10 = 11.88%
(1,00,000+88,200)/2

Cost of debt after tax

Kd= R(1-t) =11.88(1-.50)=5.94%
Cost of Capital
Cost of Redeemable Debt(kd)

iii) Cost of Debt before tax ( kd) issued at 10% Premium:

I – Rs10,000
P-Rs1,00,000
NP-Rs1,00,000+(10% on 1,00,000)-(2% of 1,10,000)=1,07,800
N- 10 years
Cost of debt before tax = 10,000+(1,00,000-1,07,800)/10=8.87%
(1,00,000+ 1,07,800)/2

Cost of debt after tax

Kd= R(1-t) =8.87(1-.50)=4.435
Sum:2: A firm issues debentures of Rs:100000 and after allowing 3%
commission to brokers . The debentures carry an interest rate of 9%.
The debentures are due for maturity at the end of the 12th year. You are
required to calculate the effective cost of debt before tax and after tax
if the debentures are issued at
i) Par ,
ii) 10% discount and
iii) 10 % premium.
Cost of Capital
Computation of Cost of Preference Shares (kp)

Kp=D/NP

Kp- Cost of Preference Capital

D- Amount of Dividend
NP-Net Proceeds= Par Value+/- Premium / Discount-
Flotation cost
Cost of Capital
Computation of Cost of Preference Shares (kp)

Sum: A company raised preference share capital of

Rs:1,00,000 by issue of 10% preference shares of
Rs10 each .Calculate the cost of preference capital
when they are issued at
i)10% premium and
ii) at 10 % discount.
Cost of Capital
Computation of Cost of Preference Shares (kp)

i)10% premium
Kp=D/NP
D-Rs10,000= (1,00,000X10%)
NP- Rs:1,00,000+10,000=1,10,000

Kp=10,000/1,10,000= 0.0909 or 9.09 %

Cost of Capital
Computation of Cost of Preference Shares (kp)

ii) at 10 % discount:

Kp=D/NP
D-Rs10,000 = (1,00,000X10%)
NP- Rs:1,00,000-10,000=90,000

Kp=10,000/90,000=0.1111 or 11.11%
Cost of Capital
Computation of Cost of Preference Shares (kp)

Sum: A company raised preference share capital of Rs:1,00,000 by issue

of 9% preference shares of Rs10 each .Calculate the cost of preference
capital when they are issued at
i)10% premium and
ii) at 10 % discount.
Cost of Capital
Computation of Cost of Preference Shares (kp)

Sum:Mendex ltd issued 10% irredeemable preference shares. The nominal

value of each share is Rs 100.You are required to calculate the cost of
preference share capital in each of the following cases:
a) When issued at 5% discount,
b) When issued at 5% premium.

D – 100X10%=Rs10
P- Rs100
Discount :NP= Rs100-(5%of 100)=95
Premium :NP=Rs100+(5%of 100)=105
Cost of Capital
Cost of redeemable Preference (Kp)

Kp= D+(P-NP)/n
(P+NP)/2
D – Amount of Dividend
P-Par value of Preference share capital
NP-Net Proceeds= Par Value+/- Premium / Discount- Flotation cost
n- Number of years to maturity
Cost of Capital
Cost of redeemable Preference (Kp)

Sum: A company has 10 % redeemable preference

shares redeemable at the end of the 10th year from the
year of their issue. The underwriting costs came to 2%.
Calculate the effective cost of preference share capital
assuming par value of Preference Rs1,00,000.
Cost of Capital
Cost of redeemable Preference (Kp)

Kp= D+(P-NP)/n
(P+NP)/2
D – Rs10,000=(1,00,000X10%)
P- Rs1,00,000
NP-Net Proceeds= Rs:1,00,000-2,000=RS:98,000
n- 10 years
F-1,00,000X2/100=2,000
10,000+(1,00,000-98,000)/10 = 10.30%
(1,00,000+98,000)/2
Sum: A company has 9 % redeemable preference
shares redeemable at the end of the 10th year from
the year of their issue. The underwriting costs came
to 3%. Calculate the effective cost of preference share
capital assuming par value of Preference Rs1,00,000
and which is issued at
a) 10% premium and
b) 10% Discount .
Cost of redeemable Preference (Kp)
a) 10% premium
Kp= D+(P-NP)/n
(P+NP)/2
D – Rs1,00,000 X 9/100=Rs:9,000
P- Rs1,00,000
NP-Net Proceeds= Rs1,00,000+(10%of 1,00,000)=1,10,000-3,300=1,06,700
n- 10 years
F- 1,10,000X3/100=3,300
9,000+(1,00,000-1,06,700)/10 =
(1,00,000+1,06,700)/2

Kp= 8.05%
a) 10% Discount :
Kp= D+(P-NP)/n
(P+NP)/2
D – Rs1,00,000 X 9/100=Rs:9,000
P- Rs1,00,000
NP-Net Proceeds= Rs1,00,000-(10% of 1,00,000)=90,000-2,700=87,300
n- 10 years
F- Rs90,000X3/100= 2,700
9,000+(1,00,000-87,300)/10
(1,00,000+87,300)/2

Kp= 10.96%
 Cost of Capital
Cost of Equity share Capital (Ke)

i) Dividend Price(D/P) Approach:

Ke= D/NP or MP
Ke- Cost of equity capital
D-Dividend
NP- Net Proceeds=Par value+/-Premium/Discount-Flotation Cost.
MP- Market Price.
Cost of Equity share Capital (Ke)
ii) Dividend Price plus growth(D/P+g) Approach:

Ke =D/NP or MP + g
D-Dividend
NP- Net Proceeds=Par value+/-Premium/Discount-Flotation Cost.
MP- Market Price.
g- growth rate.
Cost of Equity share Capital (Ke)
iii) Earnings Price (E/P) Approach:

Ke= E/NP

Ke- Cost of Equity Capital

E- Earnings Per Share
EPS= Profit available to Equity shareholders /No of eqity shares
NP- Net Proceeds=Par value+/-Premium/Discount-Flotation Cost.
Sum: A company offers for public subscription equity shares of Rs 10
each at a premium of 10%. The company pays 5% of the issue price as
underwriting communication. The rate of dividend expected by the
equity shareholders is 20%.
You are required to calculate the cost of equity capital. Will your cost
of capital be different if it is to be calculated on the present market
value of the equity shares? Which is Rs 15?
i) Dividend Price(D/P) Approach:

Ke= D/NP
Ke- Cost of equity capital= ?
D-Dividend= Rs10X20/100= Rs2
NP- Rs10+(10X10%)=Rs11-(11X5/100)=Rs10.45

Ke= 2/10.45=19.13%
i) Dividend Price(D/P) Approach:

Ke= D/MP
Ke- Cost of equity capital= ?
D-Dividend= Rs10X20/100= Rs2
MP= Rs15/-

Ke= 2/15= 13.33%

Sum: The current market price of an equity share of a company is
Rs:90. The current dividend per share is Rs:4.50. In case the dividends
are expected to grow at the rate 7%, calculate the cost of equity capital.
Dividend Price plus growth(D/P+g)
Approach:
Ke =D/NP or MP + g
D- Rs4.50
MP- Rs90.
g- 7% or 0.07

Ke= (4.50/90)+0.07
Ke= 0.05+0.07 =0.12 or 12%
 Sum:The Xavier corporation , dynamic growth firm which pays no
dividends , anticipates a long-run level of future earnings of Rs 7 per
share . The current price of Xavier’s shares is Rs:55.55, flotation costs
for the sale of equity shares would average about 10% of the price of
the shares. What is the cost of new equity capital to Xavier.
• Earnings Price (E/P) Approach:
Ke= E/NP

Ke- Cost of Equity Capital= ?

E- Earnings Per Share- Rs7
NP- Rs55.55- (10%of 55.55)=Rs:49.99

Ke= 7/49.99=14%
Sum: The entire capital employed by a company consists of one lakh
equity shares of Rs:100 each. Its current earnings are Rs 10 lakhs per
annum. The company wants to raise additional funds of Rs 25 lakhs by
issuing new shares. The flotation cost are expected to be 10%. You are
required to calculate the cost of equity capital presuming that the
earnings of the company are expected to remain stable over the next
few years.
Earnings Price (E/P) Approach:
Ke= E/NP

Ke- Cost of Equity Capital= ?

E- Earnings Per Share- Rs10,00,000/1,00,000 shares=Rs10/-
NP-Rs100-Rs10=Rs90/-
F - 10%of 100= Rs10/-
Ke= E/NP= 10/90=11.11%
Sum: From the following details of X limited, calculate the cost of
equity capital:
Each share is of Rs150 each
The underwriting cost per share amount to 2%
The company has fixed dividend pay out ratio.
The expected dividend on the new shares amounts to Rs 14.10 per
share.
The following are the dividends paid by the company for the last five
years:

Year Dividend ( Rs)

1987 14
1988 14
1989 14.50
1990 14.50
1991 15.50

Note: The compounded factor table value of 1.276 for the 4 years is 6%.
 
Dividend Price plus growth(D/P+g) Approach:

Ke =D/NP or MP + g
D- Rs14.10
NP- Rs150- (2% on 150)=Rs147
g- 3%

Ke =(14.10/Rs147) + 0.03=(0.09591+0.03)=0.1259 (or)=12.59%

Growth Rate = 15.50/14= 1.107- compounding factor Value

Growth Rate is 3%
Cost of Equity Share Capital (Ke)
iv) Realized Yield Approach:

Realized Yield Approach:

or
Trail and Error Method
Realized Yield Approach:

SUM:A purchased 5 shares in a company at a cost of Rs 240 on January

1,1987. He held them for 5 years and finally sold them in January, 1992 for
Rs 300. The amount of dividend received by him in each of these 5 years was
as follows:
Year Dividend Year Dividend
1987 Rs 14 1990 Rs14.50
1988 Rs 14 1991 Rs 14.50
1989 Rs 14.50    

You are required to calculate the cost of equity capital.

 Realized Yield Approach:
Note :Assume the discounting factor is 10%
Year Dividend ( Rs) Sale Proceeds Discount Factor Present
( Rs) @10% Value
( Rs)
1987 Rs14 -- - 1/(1+.10)^1=0.909 12.726
1988 Rs14 --- 1/(1+.10)^2=0.826 11.564

1989 Rs14.50 ---- 1/(1.10)^3=0.751 10.8895

1990 Rs14.50 ---- 1/(1.10)^4=0.683 9.9035

1991(Dec) Rs14.50 ----- 1/(1.10)^5=0.621 9.00

1992( Jan) NIL 300 1/(1.10)^5=0.621 186.30

Total Sale Proceeds 240.37

Cost of Equity Share Capital (Ke)
Capital Asset Pricing Model (CAPM)

ke= Rf+β(km-Rf )
ke- Cost of Equity
Rf- Risk free rate of return
β- beta co-efficient (non-diversifiable assets)
Km-Required rate of return on the market portfolio of assets that can be
viewed as the average rate of return on all assets.
Cost of Equity Share Capital (Ke)
β- beta co-efficient

• William Sharpe suggested that systematic risk can be measured by β,

beta factor the β can be viewed as an index of the degree of the
responsiveness of the security’s returns with market return.
• Systematic or market or indivisible risk is a type of risk which is
beyond the control of the company and is arises due to the
fluctuations in return due to general factors in the market such as
inflation, money supply, economic recession, tax policy, interest rate
policy, industrial policy, etc.
• β>1- High Risk
• Β<1- Low Risk β=1- Normal risk
Cost of Equity Share Capital (Ke)
Capital Asset Pricing Model (CAPM)

Sum: Calculate the return on investment from the following

data/information:
Risk-free return 10%
Market return 12.5%
β 1.5

CAPM = Rf + β(Km-Rf)
= 10+ 1.5(12.5-10)
=10+1.5(2.5)
=10+3.75=13.75 %
 Cost of Equity Share Capital (Ke)
Capital Asset Pricing Model (CAPM)

Sum: The market is giving an average return of 18% .The risk-free return
is 11%.
Required:
a) What return would be expected from an investment having a β-
factor of 0.9?
b) What β-factor would be necessary for an investment to yield a
return of 21.6%
Cost of Equity Share Capital (Ke)
Capital Asset Pricing Model (CAPM)

a) CAPM = Rf + β(Km-Rf)
CAPM= 11+ 0.9(18-11)
CAPM=11+0.9(7)
CAPM= 11+6.3=17.3%
Cost of Equity Share Capital (Ke)
Capital Asset Pricing Model (CAPM)

b) CAPM = Rf + β(Km-Rf)
CAPM= 11+ X(18-11)=21.6
CAPM= 11+x( 7) =21.6
CAPM = 11+7X=21.6
CAPM= 7X=21.6-11
CAPM= 7X=10.6
CAPM= X=10.6/7
X= β = 1.514 Check, CAPM= 11+ 1.514(18-11)=
= 11+1.514(7)
=11+10.598=21.598 %
 Cost of Capital
Cost of Retained Earnings (kr)

EPS= DPS+ Retained Earning

Rs100=Rs50 + Rs 50

Kr=(D/NP)+g)(1-t)(1-b)
(or)
Kr=Ke(1-t)(1-b)
D-Expected dividends
NP-Net proceeds
T- Tax rate
b- Cost of purchasing securities or brokerage cost.
Sum: A firm’s Ke (return available to shareholders) is 15%, average tax
rate of shareholders is 40% and it is expected that 2% is brokerage cost
that shareholders will have to pay while investing their dividends in
alternative securities. What is the cost of retained earnings?
Kr=Ke(1-t)(1-b)
Ke=15%
T- 40% or 0.40
b- 2% or 0.02
Kr=Ke(1-t)(1-b)
Ke=15%
NP-Net proceeds
T- 40% or 0.40
b- 2% or 0.02
Kr=15(1-0.40)(1-0.02)
=15(.60)(0.98)
= 15(0.588)=8.82%
Cost of Capital
Weighted Average Cost of Capital(WACC)

There are Two Methods:

I. Historical or Existing Weight Method
WACC using Book Value Weights
WACC using Market Value Weights
II. Marginal Weights
Cost of capital for additional funds
 Cost of Capital
Weighted Average Cost of Capital(WACC)

Sum: From the following capital structure of a company, calculate the overall cost of capital
(a) Book Value weights (b) Market Value Weights.
The after tax cost of different sources of finance is as follows:
Equity share capital: 14%, Retained earnings: 13%, Preference share capital: 10%, Debentures: 5%.

Source Book Value Market value

Equity Share Capital 45000 90000

( Rs 10 /- per share)

Retained Earnings 15000 NIL

Preference shares capital 10000 10000
Debentures 30000 30000
Weighted Average Cost of Capital(WACC)
(a) Book Value Weights

Source Book Value Weights Cost of Capital Weighted Average

( Rs) after taxes Cost of Capital ( Ko)
(%)
Equity Share Capital 45000 (1/1,00,000)*45,000=0.45 14 (.45X14)=6.3

( Rs 10 /- per
share)
Retained Earnings 15000 0.15 13 1.95
Preference shares 10000 0.10 10 1.00
capital
Debentures 30000 0.30 5 1.5
1,00,000 1 10.75
Overall Cost of Capital(Ko)
(a) Overall Cost of Capital based on Book Value

Source Book Value Cost of Capital Overall Cost of

( Rs) (%) Capital
( Ko)

Equity Share Capital 45000 14 45,000X14%=6,300

( Rs 10 /- per share)
Retained Earnings 15000 13 1,950
Preference shares capital 10000 10 1,000
Debentures 30000 5 1,500
1,00,000 10,750

=10,750/1,00,000*100=10.75%
Weighted Average Cost of Capital(WACC)
(b) Based on Market Value Weights

Source Market Value Weights Cost of Capital Weighted Average Cost of

( Rs) (%) Capital ( Ko) %
Equity Share 90,000 0.6923 14 9.6922
Capital (1/1,30,000)*
90,000
Preference shares 10000 0.0769 10 0.769
capital
Debentures 30000 0.23076 5 1.1538

1,30,000 1 11.615 %
Weighted Average Cost of Capital(WACC)
Weighted Average Cost of Capital(WACC)
COST OF CAPITAL
WACC - Composite Cost - Problems
WACC - Composite Cost of Capital:
COST OF CAPITAL
WACC - Composite Cost - Problems
WACC - Composite Cost of Capital :
WMCC – Weighted Marginal Cost of
Capital
•Weighted Marginal Cost of Capital (WMCC): Marginal Weights

Marginal cost of capital is the cost of additional funds to be raised.

 Marginal cost of capital is the weighted average cost of new capital

calculated by using Marginal Weights

Marginal weights represent the proportion of various sources of funds
to be employed in raising additional funds

(E.g. Equity = 50% Preference shares = 25%, Debentures = 25%)

 If existing proportion of capital structure and the component cost remain
the same, then the Marginal cost of capital shall be equal to the WACC

 If proportion and/or the component of the costs change for additional

funds to be raised, then the marginal cost of capital shall not be equal
to the WACC

 Since the marginal cost of capital concept ignores the long-term

implications of the new financing plans, WACC should be preferred for
maximization of shareholders wealth in the long run
COST OF CAPITAL
WMCC – Marginal Cost of Capital
Weighted Marginal Cost of Capital (WMCC): Marginal Weights / Marginal Cost of Capital

Formula:

Weighted Marginal Cost of Capital (WMCC) =

[Proportion of capital1 x After-tax cost of capital1]

[Proportion of capital2 x After-tax cost of capital2]

[Proportion of capitaln x After-tax cost of capitaln]

COST OF CAPITAL
WMCC – Marginal Cost of Capital
Weighted Marginal Cost of Capital (WMCC): Marginal Weights / Marginal Cost of Capital
COST OF CAPITAL
WMCC – Marginal Cost of Capital
Weighted Marginal Cost of Capital (WMCC): Marginal Weights / Marginal Cost of Capital

Conclusion: The weighted marginal cost of capital is 9.75% for the additional or
marginal capital of Rs.6,00,000
COST OF CAPITAL
WMCC – Marginal Cost of Capital
Weighted Marginal Cost of Capital (WMCC): Marginal Weights / Marginal Cost of Capital
COST OF CAPITAL
WMCC ( book Value Weights )

Sources of Capital Weights After Tax cost of Weighted Average

Capital (%) Cost of Capital ( %)

Equity Share Capital 0.50 18 9.00

Preference Share 0.30 15 4.5

Capital
Debt 0.20 7 1.4

1 14.9
COST OF CAPITAL
WMCC ( Market Value Weights )

Sources of Capital Weights After Tax cost of Weighted Average Cost

Capital (%) of Capital (%)

Equity Share Capital 0.15 18 2.7

Preference Share 0.35 15 5.25

Capital

Debt 0.50 7 3.50

11.45 %

1
iii) WMCC ( Market Value Weights )
Sources Weights After Tax cost of Weighted Average Cost
Capital (%) of Capital (%)

Retained Earnings 0.15 18 2.70

Preference Share 0.35 15 5.25
Capital
Debt 0.50 7 3.50
1.00 11.45%