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324 Corporate Finance BRILLIANT’S

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(a) 9% Debentures / 9% {S>~|Mg© 3,00,000
(b) 7% Preference Shares / 7% {à’$a|g eo¶g© 1,00,000
(c) Equity Shares (30,000 Equity Shares of ` 10 each) 3,00,000
Bp³dQ>r eo¶g© (30,000 Bp³dQ>r eo¶g© à˶oH$ ` 10)
(d) Retained Earnings / [aQ>|S> A{Zª½g 2,00,000
Total / Q>moQ>b 9,00,000

The Market Price of Equity Shares of ` 40 per share. A dividend of ` 4 per share is proposed.
The company has a marginal tax rate 30%. Compute the Weighted Average cost of the Capital of
the Company.
Bp³dQ>r eo¶a H$m ~mOma ‘yë¶ ` 40 à{V eo¶a h¡& ` 4 à{V eo¶a Ho$ {S>{dS>|S> H$m àñVmd h¡& H§$nZr H$m ‘m{O©Zb
Q>¡³g aoQ> 30% h¡& H§$nZr Ho$ H¡${nQ>b H$s doQ>oS> EdaoO H$m°ñQ> H$s JUZm H$s{OE&
Solution:
D 1 4
K =  100 =  100  10%
e P 0 40
K = K (1 – t)
d i
= 9 (1 – 0.30) = 6.3%
Calculation of WACC
Source Amount Ratio Cost (%) Weigted Cost (%)
(`)
Debentures 3,00,000 3/9 6.3 2.10
Preference Shares 1,00,000 1/9 7.0 0.78
Equity Shares 3,00,000 3/9 10.0 3.33
Retained earnings 2,00,000 2/9 10.0 2.22
9,00,000 WACC = 8.43%

Illustration 4.1.22
ABC Ltd. has the following capital structure: / ABC {b{‘Q>oS> H$s {ZåZ{b{IV H¡${nQ>b ñQ´>³Ma h¡…
Equity Capital (Expected Dividend 15%)
Bp³dQ>r H¡${nQ>b (15% {S>{dS>|S> Ano{jV) ` 5,00,000
10% Preference Capital / 10% {à’$a|g H¡${nQ>b ` 2,50,000

9% Loan / 9% bmoZ ` 7,50,000
You are required to calculate WACC. (Assume Tax Rate 60%).
AmnH$mo WACC H$s JUZm H$aZm h¡ (Q>¡³g aoQ> 60% ‘mZm J¶m h¡)