Xyz a telecom company has the following capital, Ask an Expert

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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%

During this tax year, company is liable to pay tax @ 35%, andinvestors are expecting that earnings and dividends will grow at a constant rate of 10%.Current year's dividend is Rs. 4 per share and the common stocks are selling at Rs. 60per share.

XYZ can obtain new capital in the following ways:

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

Debentures: Debentures can be sold at aninterest rate of 13%.

You are required to

• Determine the cost of each capital structure component and

• Calculate the weighted average cost of capital.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9997044

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