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XYZ Ltd. has the following book value capital structure: Equity Capital (in shares of 10 each, fully paid up-at par) *15 crores 11% Preference Capital (in shares of *100 each, fully paid up-at par) *1 crore Retained Earnings *20 crores 13.5% Debentures (of 100 each) *10 crores 15% Term Loans *12.5 crores The next expected dividend on equity shares per share is *3.60; the dividend per share is expected to grow at the rate of 7%. The market price per share is = 40 Preference stock, redeemable after ten years, is currently selling at 75 per share. Debentures, redeemable after six years, are selling at * 80 per debenture. The Income tax rate for the company is 40%. (1) Required Calculate the current weighted average cost of capital using: (a) book value proportions; and (b) market value proportions. (ii) Define the weighted marginal cost of capital schedule for the company, if it raises *10 crores next year, given the following information: (a) the amount will be raised by equity and debt in equal proportions; (b) the company expects to retain *1.5 crores earnings next year; (c) the additional issue of equity shares will result in the net price per share being fixed at32; (d) the debt capital raised by way of term loans will cost 15% for the first *2.5 crores and 16% for the next 2.5 crores

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