Risk Equity Share

Pm Capital

Preference Shares

Pvt sector Bonds

Govt
Risk securities
Free
Int.
Risk
  Cost of Debt
(Redeemable)
I (1-t) + (F-P)/n
Kd = ----------------------------
(F+P)/2

Kd = Cost Of Debt
I = Annual Interest Payment per debenture
F = Redemption price per debenture
P = Net amount realized per debenture
n = maturity period
 Irredeemable Debt

I (1-t)
Cost of Debt = -----------
P
 Cost of Preference Shares
D+ (F-P)/n
Kp = ------------------
(F+P)/2
 Cost of Equity
D1
Ke = ------ + g
Po

Po = Price per equity Share

D1 = Dividend at the end of year one
g = Growth Rate
 Cost of Fresh Equity
D1
Ke = ------ + g
NP

 NP = Net Proceeds
 Cost of Term Loan

= I (1-t)
 Calculation of Weighted average cost of capital

Source Amount Weight C/C Weighted c/c

Equity Sh Cap 5,00,000 .50 13.8% 6.9%

9%Pref. Sh. Cap 2,00,000 .20 9% 1.26%
10%Debentures 3,00,000 .30 5% 1.00%

---------------
WACC 10.2%
========
 Calculation of Weighted average cost of capital
(Revised)

Source Amount Weight C/C Weighted c/c

Equity Sh Cap 5,00,000 .33 14.4% 4.75%

9%Pref. Sh. Cap 2,00,000 .14 9% 1.26%
10%Debentures 3,00,000 .20 5% 1.00%
12% Loan 5,00,000 .33 6% 1.98%

---------------
WACC 8.99%
========
 Calculation of Weighted average cost of capital

Source Amount Weight C/C Weighted c/c

Equity Sh Cap 10,00,000 .5 15.09% 7.54%

10%Pref. Sh. Cap 4,00,000 .2 10 % 2.00%
12%Debentures 6,00,000 .3 6% 1.80%
---------------
WACC 11.34%
========
 Calculation of Weighted average cost of capital
(Revised)
Source Amount Weight C/C Weighted c/c

Equity Sh Cap 10,00,000 .33 17.42% 5.80%

10%Pref. Sh. Cap 4,00,000 .13 10 % 1.33%
12%Debentures 6,00,000 .20 6% 1.20%
14% Loan 10,00,000 .33 7% 2.33%

---------------
WACC 10.66%
========
 Calculation of the growth rate

14.19
Growth Rate is = 5 ------------ - 1
10.60