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BRILLIANT’S Cost of Capital 319

Solution:

D 18
K = 1  g =  0.06 = 0.20 + 0.06 = 0.26 or 26%
e P 90
Illustration 4.1.15
The shares of Campbell Ltd. are selling at ` 24 per share. The firm had paid dividend @ ` 1.80
per share last year. The estimated growth of the company is approximately 5% per year. Deter-
mine the cost of equity capital of the company.
H¡$ån~ob {b{‘Q>oS> Ho$ eo¶g© ` 24 à{V eo¶a na ~oMo J¶o h¢& g§ñWm Zo {nN>bo df© ` 1.80 à{V eo¶a {S>{dS>|S> H$m
^wJVmZ {H$¶m Wm& H§$nZr H$s AZw‘m{ZV d¥{Õ bJ^J 5% à{V df© h¡& H§$nZr H$s Bp³dQ>r H¡${nQ>b H$s bmJV H$m {ZYm©aU
H$s{OE&
Solution:

D (l g) 1.80 (1 0.05)
o
K =  g =  0.05 = 0.0787 + 0.05 = 0.1287 or 12.87%
e P 24
Illustration 4.1.16 NPP
The average rate of dividend paid by Y Limited for the last five years is 25%. The earnings of the
company have recorded a growth rate of 4% per annum every year. The market value of the equity
share is estimated to be ` 110. Find out the Cost of Equity Share Capital.
{nN>bo nm±M dfm] Ho$ {bE Y {b{‘Q>oS> Ûmam ^wJVmZ {H$¶o J¶o {S>{dS>|S> H$s Am¡gV Xa 25% h¡& H§$nZr H$s Am¶ Zo à{V
df© 4% H$r d¥{Õ Xa [aH$m°S>© H$s h¡& Bp³dQ>r eo¶a H$m ~mOma ‘yë¶ ` 110 hmoZo H$m AZw‘mZ bJm¶m J¶m h¡& Bp³dQ>r eo¶a
H¡${nQ>b H$s bmJV kmV H$s{OE&
Solution:
D = 25% or ` 25 per share (par value being ` 100);
P = ` 110;
G = 4%
D i 25
K =  g   0.04 = 0.2673 or 26.73%
P
e
0 110
Illustration 4.1.17
Assuming that the firm pays tax at a 50% rate, compute the after tax cost of capital in the
following cases:

(a) A 14.5% preference share sold at par.
(b) A perpetual bond sold at par, coupon rate being 13.5%.
(c) A ten year 8% ` 1,000 per bond sold at ` 950.
(d) A common share selling at a market price of ` 120 and paying a current dividend of ` 9 per
share which is expected to grow at a rate of 8%.