Capital structure - case study, finance, Other Engineering

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The following is the capital structure of X ltd on 31st Dec2003

Rs in million

Equity capital (paid up) 563.50

Reserves and surplus 485.66

10% Irredeemable preference shares 56.00

10% Redeemable preference shares 28.18

15% Term loans 377.71

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Total 1511.05

The share of the company is currently selling for Rs 36. The expected dividend next year is Rs 3.60 per share anticipated to be growing at 8% indefinitely. The redeemable preference shares were issued on 1 January 1997 with twelve-year maturity period. A similar issue today will be at Rs 93. The market price of 10% irredeemable preference share is Rs 81.81. The company had raised the term loan from IDBI in 1993. A similar loan will cost 10% today.

Assume an average tax rate of 35 percent. Calculate the weights average cost of capital for the company using book-value weights.

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