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2. The cost of specific sources of capital for Bharat Nigam Limited (BNL) are:
rE = 16%, rP = 14%, rD = 12%
The market value proportions of equity, preference, and debt are:
wE = 0.60, wP = 0.05, wE = 0.35
The tax rate for BNL is 30%
What is WACC of BNL ?
5. Mahindra Hitec Ltd. has the following capital structure based on market value.
Sr. No. Particulars Amount in Rs.
1. Equity Capital 100,00,000
(80,000 shares of Rs. 10 face value)
2. 15% Preference Capital 6,21,000
(6,000 shares of Rs. 100 par value)
3. 14% Debentures 9,70,000
(Face value of Rs. 1,000)
4. 16% Term Loan 8,00,000
Dividend expected for the next year is Rs.3.50 and expected to grow at the
Rate of 12%. It is presently selling at Rs. 125.
Preference shares are redeemable after 5 years at a premium of 5% and debentures
are redeemable after 10 years at face value. They are presently selling at Rs. 103.50
and Rs. 970 respectively.
The applicable tax rate for the company is 40%.
Calculate the WACC using market value as weights.
6. Diversified Ltd. is evaluating a granite project for which it proposes to use a debt-
equity ratio of 1.5:1. The pre-tax cost of debt is 15% and the tax rate is expected to be
30%. The risk-free rate is 12% and the expected return on the market portfolio is
16%.
There are three firms, A,B and C engaged in granite manufacturing. Their tax tare is
40%.Their equity betas and debt-equity ratios are as follows:
Equity beta D/E ratio
A 1.20 2.1
B 1.10 1.8
C 1.05 1.3
Calculate the weighted average cost of capital. (required rate of return)