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326 Corporate Finance BRILLIANT’S

14% arS>r‘o~b {à’$a|g eo¶a (5 df©), ¶h 5% H$s âbmoQ>oeZ H$m°ñQ> gpå‘{bV H$aVm h¡ VWm {dH«$¶ ‘yë¶
`100 h¡&>
 Equity share (` 2 per share brokerage) will fetch ` 22.
Bp³dQ>r eo¶a (~«moH$aoO ` 2 à{V eo¶a) ` 22 H$m {‘boJm&
In addition, the dividend expected as the equity share at the end of the year is ` 2 per share.
The anticipated growth rate in dividends is 6% and the firm has the practice of paying all its
earnings in the form of dividends. The corporate tax rate is 35%. You are required to calculate
WACC using book and market values.
BgHo$ A{V[a³V df© Ho$ A§V ‘| Bp³dQ>r eo¶a Ho$ ê$n ‘| Ano{jV {S>{dS>|S> ` 2 à{V eo¶a h¡& {S>{dS>|S²>g ‘| Ano{jV
d¥{Õ Xa 6% h¡ VWm g§ñWm {S>{dS>|S²>g Ho$ ê$n ‘| BgHo$ g^r A{Zª½g H$m ^wJVmZ H$aZo H$m à¶moJ H$aVr h¡& H$m°nm}aoQ> Q>¡³g
aoQ> 35% h¡& AmnH$mo ~wH$ VWm ‘mH}$Q> d¡ë¶yO H$m Cn¶moJ H$aHo$ WACC H$s JUZm H$aZm h¡&
Solution:
Working Notes:
1. Calculation of No. of Debentures, Preference Shares and Equity Shares.

7,00,000 3,00,000
(a) Debentures =  7,000 (b) Preference Shares =  3,000
100 100
10,00,000
(c) Equity Shares =  10,000
100
2. Calculation of Market Values of Debentures, Preference Shares and Equity Shares.
`
Debenture (7,000 × 110) 7,70,000
Preference Shares (3,000 × 120) 3,60,000
Equity Shares (1,00,000 × 22) 22,00,000
33,30,000
3. Calculation of cost of (redeemable) debts (K ), cost of preference shares (K ) and cost of
d p
equity (K ) (Based on anticipated external financing opportunities)
e
(a) Cost of redeemable debts (K )
d


 RV NV   100 96 * 
I(1 t)    13(1 0.35)   
 n   8 
K = =
d 100 96 

 RV + NV  
   
 2   2 
(* ` 100 FV less flotation cost 4%)
8.45 0.5 8.95
=   0.0913 or 9.13%
98 98