B.S.

ABDUR RAHMAN CRESCENT INSTITUTE OF SCIENCE AND

TECHNOLOGY

Department of Management Studies

MSD 6203 Financial Management

Assignment – 3

Date of submission – 28.04.2020

1. Ganesh ltd. Issued 2.000, 9% Debentures of Rs.100 each at a premium of 10

%. The issue expenses are 3% . The tax rate is 40%. Calculate Cost of debt
before tax and after tax.
2. ‘X’ Ltd. Issued 20,000, 7% Debentures of Rs.100 each at a premium of 5 %.
The maturity period is 5 years and the tax rate is 40%. Calculate the cost of
debentures before and after tax if the debentures are redeemable at par.
3. Dinesh Ltd. has issued 9%, 10,000 Preference shares of Rs. 100 each. The
issue expenses are Rs.3 per Share. You are required to ascertain the cost of
preference share capital if the shares are issued (a) at a par; (b) at a premium
of 10 % and (c) at a discount of 5%.
4. Sandhya Ltd. has issued 12,000, 12% Preference shares of Rs. 100 each. The
shares are redeemable after 10 years at a premium of 10 %. Flotation costs
are 4%. Calculate the effective cost of redeemable preference share capital.
5. Akash Ltd. Offers for public subscription equity shares of Rs.10 each at a
premium of 10%. The company pays an underwriting commission of 5 % on
the issue price. The Equity shareholders expect a dividend of 15%. (a).
Calculate the cost of Equity capital. (b). Calculate the cost of Equity
capital, if the market price of the share is Rs.20.
6. The Market price of an equity share of mills Ltd., is Rs.120. The expected
equity dividend is Rs.2.40 Per share. The shareholders anticipate a growth of
10 % in Dividends. You are required to calculate cost of equity capital.
7. Shukla Ltd., intends to raise Rs.20 lakh by issue of new equity shares. The
relevant particulars are given Below:
No. of existing equity shares - 5 lakhs
Profit after tax - Rs.25 lakhs

M.B.A – ‘A’
 Market value of existing shares - Rs. 200 lakhs
You are required to calculate (a) The cost of existing capital and (b) The cost
of new capital if the shares are issued at a price of Rs.34 per share and the
issue expenses are Rs. 4 per share.
8. Mr. Raghu purchased 10 shares in Rekha & co. at a cost of Rs.5,200 on
1.1.2001. He retained the shares for 5 Years and sold them on 1.1.2006 for
Rs. 6,500. The dividends which he received for the last 5 years are as
follows.
Year 2001 2002 2003 2004 2005
Dividend(Rs.) 300 300 320 320 320.
Compute the cost of equity shares.
9. Rajam Ltd. Has an annual profit of Rs. 50,000 and the Required rate of
return of the shareholders is 10 %. It is further expected that the shareholders
will have to incur 3 % brokerage cost of the dividends received and invested
by them for making new investments. Find out the cost of retained earnings
to the firm given that the tax rate applicable to shareholders is 30%.
10.The following information is provided in respect of the specific cost of
capital of different sources along with the book value (BV) and the market
value (MV) weights.

Source Cost of Book Value Market Value

Capital (Rs.) (Rs.)
Equity share capital 18% 50000 78000
Preference share 15 % 20000 47000
capital
Long term debts 7% 30000 55000
Retained Earnings 12% 20000 -
Calculate the weighted average cost of capital, using both the Book value
and the Market value as weights.

M.B.A – ‘A’