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Cost of Capital Assignment 1

The document outlines various assignments related to calculating the cost of debt and cost of preference shares for different scenarios involving debentures and equity shares. Each assignment provides specific details such as interest rates, redemption premiums, floatation costs, and tax rates to compute the respective costs. The calculations involve determining costs for different financial instruments issued by companies over specified periods.

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18 views1 page

Cost of Capital Assignment 1

The document outlines various assignments related to calculating the cost of debt and cost of preference shares for different scenarios involving debentures and equity shares. Each assignment provides specific details such as interest rates, redemption premiums, floatation costs, and tax rates to compute the respective costs. The calculations involve determining costs for different financial instruments issued by companies over specified periods.

Uploaded by

afzalsarahussain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ASSIGNMENT 1 - COST OF DEBT AND COST OF PREFERENCE SHARE

1 A company issued Rs. 1,00,000, 12% Debentures at a discount of


2%. They are redeemed at 3% premium after 5 years. Calculate
Cost of debt assuming tax at 30%

2 A company issued 3000, 10% debentures of Rs. 10 each at premium of


10%. They are redeemed at par after 6 years. Calculate
cost of debt

3 A company issued Rs. 420000, 4% debentures of Rs. 100 each at


discount 10%. Floatation cost 5%. Calculate the cost of debt
assuming the tax at 35%.

4 A company issued 10000, 8% Preference shares of Rs.100 each at premium


of 10%. Floatation cost Rs. 20000. These preference shares
are redeemed at 4% premium after 7 years. Calculate the cost
of preference shares

5 A company issued preference shares of Rs. 50 each at premium of Rs. 5 each.


Floatation cost Rs.1 per share. These preference shares are redeemed
at Rs.2 premium. Calculate the cost if the company pays 10% dividend.

6. A company issued 6000 equity shares of Rs. 10 each. Dividend of 10% is paid during
the year. The market price of a share is Rs. 16 per share. Profit after tax Rs. 60000.
Calculate the cost of equity under
a) Dividend yield approach
b) Earning price approach
c)

7. A company issued 42000 equity shares of Rs. 100 each at premium 10%.

The floatation cost Rs. 6000. The company is offering dividend of Rs. 10

per share. It is expecting to grow at 12%. Calculate cost of equity.

8. The firm issued 5,00,000 equity shares. The market value of existing share Rs. 120
each.
Net earnings Rs. 1,20,00,000. Compute cost of capital

a) Cost of capital
b) cost of capital if issue price is R. 97 per share
and cost of new issue is Rs.3 per share

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