Calculate weighted average cost of capital of a ABC ltd with the following data.

Solution

The solution is mentioned below −

	Amount in Rs.	X	After tax cost in	Y
Equity share capital	750000 (A)	(A)/(Z)=0.32 (x1)	0.13 (a)	(a)*(x1)=0.0416
Retained earnings	480000 (B)	(B)/(Z)= 0.20 (x2)	0.14 (b)	(b)*(x2)= 0.028
Preference share capital	550000 (C)	(C)/(Z)= 0.23 (x3)	0.11 (c)	(c)*(x3)= 0.0253
Debentures	575000 (D)	(D)/(Z)= 0.25 (x4)	0.0975 (d)	(d)*(x4)= 0.0244
Total (Z)	2355000			0.1193

Weighted average cost of capital = 11.93%

That means, company is paying 11.93% premium to the investors.

Mandalika

Updated on: 25-Sep-2020

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