CAL

(3 Marks)

Q-5 (a)
Determine the cost of
value (MV) weights from the capital BestLuck Limited using the book value
of
following information: (BV) and market

Source of Capital
Book Value
Market Value
Equity Shares
1,20,00,000
Retained earnings 2,00,00,000
30,00,000
Preference shares 9,00,000
Debentures 10,40,000
36,00,000
33,75,000

Additional information:
1. Equity: Equity shares are
quoted at Rs.130 per share and new
share will be fully issue priced at Rs.125 per
subscribed; floatation costs will be Rs.5 per share
2. Dividend: During the
previous five years, dividends have steadily
Rs.14.19 per share. Dividend at the end of increased from Rs.10.60 to
the current year is
share expected to be Rs. 15 per
3. Preference shares: 15% preference shares with face value of Rs.100
per share would realize Rs.105
4. Debentures: The company proposes to issue
11-year 15% debentures but the yield on
similar maturity and risk class is 16%;
floatation cost is 2%
. Tax: Corporate tax rate is 35%.
gnore dividend tax

5 Marks)

b) The risk free rate of return is 8%. The

beta of X Limited is 1.4. The risk premium of the
market is 6%. Compute cost of equity using CAPM.

(2 Marks)