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Illustration 37. ABC Ltd. has the following book value capital structure Equity Capital (10 million shares, 10 par) Preference capital, 11%(1,00,000 shares, 100 par) Retained earnings Debentures, 13.5%(5,00,000 debentures, 100 par) Term loans, 12% (million) 100 10 120 50 80 360 The next expected dividend per share is.1.50. The dividend per share is expected to grow at the rate of 7%. The market price per share is 20. Preference stock, redeemable after 10 years is currently selling for 75 p hueDebentures, redeemable after 6 years are selling for 80 per debenture The tax rate for the company is 50%. Calculate the weighted average cost of capital using (a) book value proportions; and (b) market value proportions. |
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