Compute the new WACC if the company raises an additional 40 Lakh debt by issuing 13% debentures. This would result in increasing the expected dividend to Rs. 3.60 and leave the growth rate unchanged but the price of the equity share will fall to Rs. 24.
Cost of equity after the change (Gordon growth) is $k_e=\dfrac{D_1}{P_0}+g=\dfrac{3.60}{24}+g=0.15+g$ (i.e. 15% plus the unchanged growth rate $g$). Cost of new debt (debentures) $k_d=13\%$. The new market values (post-issue) are ____ ___ ____ _______ ___ ______ _________ __________ _____ ____.
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ABC Ltd. has the following book value capital structure as on March, 31, 2024.
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10% preference shares
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Based on the above information calculate.
Compute the new WACC if the company raises an additional 40 Lakh debt by issuing 13% debentures. This would result in increasing the expected dividend to Rs. 3.60 and leave the growth rate unchanged but the price of the equity share will fall to Rs. 24.
Weighted average cost of capital (WACC) of the company based on the existing capital structure.
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