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  • 21PGDM089 SumanRoy Financial Management

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    Triparna Paul
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    P Ltd is planning to raise additional finance of Rs. 50,00,000 through a combination of debt and equity. The document calculates the weighted average cost of capital (WACC) of 12.61% for the additional financing. As the internal rate of return (IRR) of the project is 11%, which is less than the WACC, the document concludes that P Ltd can accept the project.

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    P Ltd is planning to raise additional finance of Rs. 50,00,000 through a combination of debt and equity. The document calculates the weighted average cost of capital (WACC) of 12.61% for the additional financing. As the internal rate of return (IRR) of the project is 11%, which is less than the WACC, the document concludes that P Ltd can accept the project.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    11 views4 pages

    21PGDM089 SumanRoy Financial Management

    Uploaded by

    Triparna Paul
    P Ltd is planning to raise additional finance of Rs. 50,00,000 through a combination of debt and equity. The document calculates the weighted average cost of capital (WACC) of 12.61% for the additional financing. As the internal rate of return (IRR) of the project is 11%, which is less than the WACC, the document concludes that P Ltd can accept the project.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 4

    P Ltd is planning to raise additional finance of ₹ 50, 00,000

    Debt 2000000
    Equity 3000000

    average cost of additional debt

    A) Ki=i/NSV*100
    i 276000
    Ki 13.8
    Kd 8.97

    Cost of equity
    B) EPS 20
    DPR 40%
    DPS DPR*EPS
    Div per share(D0) 8
    g 20%
    D1 9.6
    P0 40

    Overall cost of capital (Ko)


    only equity Ke
    Both debt and equity WACC

    C) Detailed pattern

    1 Retained Earning
    2 Equity Share Capital
    3 12% debt
    4 15% debt
    5 Total additional Finance

    Equity 700,000
    Debt 300,000
    TOTAL 1,000,000
    WACC = (Ke*We)+(Kd*Wd) 0.5771
    12.61%

    D) As WACC > IRR [12.61%>11%] so they can accept the project


    nal finance of ₹ 50, 00,000

    Detailed pattern

    1 Retained Earning 600000


    2 Equity Share Capital 2400000 3000000
    3 12% debt 800000 0.12
    4 15% debt 1200000 2000000 0.15
    5 Total additional Finance 5000000

    Ke= (D1/P0)+g
    44.00%
    Cost of equity=Cost of retained earning=44%

    600000
    2400000 3000000
    800000
    1200000 2000000
    5000000

    Cost
    0.44 Ke We 0.7
    0.897 Kd Wd 0.3
    0.6685
    the project

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