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10/23/2016
Cost of Capital Problems - Solved - FINANCIAL MANAGEMENT Solved Problems
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FINANCIAL MANAGEMEN
14 (100 – 92) / 12 k p = (110 + 95) / 2 14 + .67 = 95 = 15.28% Problem 2
a) A company raised preference share capital of Rs. 1,00,000 by the issue of 10% preferen Rs. 10 each. Find out the cost of preference share capital when it is issued at (i) 10% pre (ii) 10% discount. b) A company has 10% redeemable preference share which are redeemable at 6the end of from the date of issue. The underwriting expenses are expected to 2%. Find out the effe preference share capital. c) The entire share capital of a company consist of 1,00,000 equity share of Rs. 100 each. I earnings are Rs. 10,00,000 p.a. The company wants to raise additional funds of Rs. 25,0 issuing new shares. The flotation cost is expected to be 10% of the face value. Find out equity capital given that the earnings are expected to remain same for coming years. Solution (a) Cost of 10% preference share capital (i) When share of Rs. 10 is issued at 10% premium
K p = D / P0 = 10 / 11 x 100 = 9.09% https://www.coursehero.com/file/12121647/Cost-of-Capital-Problems-Solved/
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10/23/2016
Cost of Capital Problems - Solved - FINANCIAL MANAGEMENT Solved Problems
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=
.
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= 97.50
= 7.43% 97.50
(ii) Cost of preference capital
D + (RV – SV) / N k p (RV + SV) / 2
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1 / 16 Where, D = SV = N = RV =
Dividend on Preference share i.e. Rs. 14 Issue Price per share minus floatation cost Rs. 92 No. of years for redemption i.e. 12 years Net price payable on redemption Rs. 100 Rushi Ahuja
