Case 1 :

The following figures are available from the financial records of Monalisa Inc

BV = Book value : MP = Market price : NA - Not applicable

Dividend for the

No of BV / cur yr /yearly Term to Div Growth/
instrument share Instrument MP/ coupon for Pref/ maturity Intt growth
s (Millions) (Rs) Type share (Rs) debenture (*) (yrs) YOY (Past)
20 200 Equity 500 25% NA 5.0%
30 1000 Pref capital 1020 12% 5 0%
50 1000 Debentures 980 14% 6 0%
             
           
Further Information :
1. The average Tax rate for the company is 30%
2. All the debt/ Preference instruments can be presumed to have been issued today. The coupon on
them is fixed and constant. (ie there is no yearly growth)
3. The dividends are presently @ 25% of face value of shares. They have grown in the past at an
average rate of 5% YOY. The same trend is expected to continue in the future.
4. All the 3 instruments can be assumed to be actively traded on their respective bourses
             
Given the above, Compute the " Weighted average cost of capital " for the company presently

Cost of Preference Share Capital = 120/1020 = 11.7647%