A company just reported an EPS of Rs. 10. The dividend pay-out was 50%. The earnings and dividends are expected to grow

[answerhappygod]

A Company Just Reported An Eps Of Rs 10 The Dividend Pay Out Was 50 The Earnings And Dividends Are Expected To Grow 1 (255.9 KiB) Viewed 83 times

A company just reported an EPS of Rs. 10. The dividend pay-out was 50%. The earnings and dividends are expected to grow at 10% for the next three years and then drop to a growth rate of 5% forever. The dividend pay-out ratio is expected to be maintained. The current market price is Rs.59.68. The new equity can be issued by the company to raise fresh capital. The cost of new equity will be 1% higher than the cost of retained earnings. The company is in the 40% tax bracket. Company's Rs.1000 par value, 8% p.a.: 10-year bonds issued 3 years back (7 years left to maturity) quote in the market at Rs.902.63 The company will be able issue fresh bonds at the same YTM (Yield to maturity) The Company's Rs.100; 9% preference shares are quoting in the market at Rs.90. The company feels it can raise new preference shares at the same yield to the investor. A part of the Company's balance sheet is as follows: The company wants to raise an additional 100 lakhs of capital. The CFO wants to use the market value weights instead of book value weights to raise fresh capital. She seeks your advice on the new project. The new project has a similar level of risk as the existing business of the company. To begin with she wants to know the cost of capital for the new project. Cash 55,00,000 Accounts payable 5,00,000 Inventory 65,00,000 Short term debt 10,00,000 Ale receivable 35,00,000 Long term Debt (8,000 bonds; 8% p.a. 80,00,000 @ Rs.1000) Fixed Assets 110,00,000 Preference shares (70,000, eight 70,00,000 percent preference shares, @ Rs.100) Equity shares (1,00,000 equity shares 10,00,000 @Rs.10) Retained earnings 90,00,000 Answer as per the following template (correct to 2 decimal places) (i) Cost of Debt (after tax) (ii) Cost of Preference Share Cost of Retained Earnings (iv) Cost of New Equity (v) Weight of Debt (vi) Weight of Preference Share (vii) Weight of Retained earnings (viii) Weight of New equity (ix) Weighted average cost of capital 2 marks 0.5 marks 3 marks 0.5 marks 0.5 marks 0.5 marks 0.5 marks 0.5 marks 2 marks ANSWER IN THE ABOVE FORMAT ONLY AND THEN SHOW YOUR CALCULATIONS