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Task1. XYZ, a Telecom Company, has the following capital structure, which is considered to be optimal:

Debentures                 20%

Preferred stock            20%

Common equity            60%

Total                         100%

Throughout this tax year, company is liable to pay tax @ 35%, and investors are expecting that earnings and dividends will grow at a stable rate of 10%.Current year’s dividend is Rs. Four per share and the common stocks are selling at Rs. 60per share.

XYZ can acquire new capital in the following manners:

Preferred stock: New preferred stock with a dividend of Rs. 15 can be sold to the public at a price of Rs. 97 per share.

Debentures: Debentures can be sold at an interest rate of 13%.

You are required to

• Find out the cost of each capital structure component

• Compute the weighted average cost of capital.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93876

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