Cost of Preference Shares and Equity (Talking Head) - Case 5

access_time 2020-03-07T07:11:27.472Z face CA N Raja Case Study Solved

Calculate the Cost of Capital from the following cases:

(i) 10-year 14% Preference shares of Rs 100, redeemable at premium of 5% and flotation costs 5%. Dividend tax is 10%.

(ii) An equity share selling at Rs 50 and paying a dividend of Rs 6 per share, which is expected to continue indefinitely.

(iii) The above equity share if dividends are expected to grow at the rate of 5%.

(iv) An equity share of a company is selling at Rs 120 per share. The earnings per share is Rs 20 of which 50% is paid in dividends. The shareholders expect the company to earn a constant after tax rate of 10% on its investment of retained earnings.

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