Magma Ltd. is a manufacturing industry which has a mix of equity and debt to finance its business. The company is growing at a considerable rate prompting the management to go for expansion. The company is considering va

Magma Ltd. is a manufacturing industry which has a mix of equity and debt to finance its business. The company is growing at a considerable rate prompting the management to go for expansion. The company is considering various alternatives to raise funds for the same. The capital structure of Magma Ltd. is as follows: Particulars Amount (₹) 12% Debentures (first issue) 3,00,000 13% Debentures (second issue) 2,00,000 10% Cumulative Preference Shares 2,50,000 Equity Shares (Face Value of ₹ 10 per share) 6,00,000 Retained Earnings 1,50,000 Additional Information: (1) Equity shares are sold in the market at ₹ 25 per share. The company is contemplating the declaration of dividend of ₹ 3 per share at the end of the current financial year. The company has a practice of paying all earnings in the form of dividend. (2) ₹ 100 per debenture (first issue) redeemable at par has 2% floatation cost and 8 years of maturity. The market price per debenture is ₹ 120. (3) The second issue of debentures (₹ 100 each) is redeemable after 5 years and are currently selling at ₹ 90 per debenture. (4) ₹ 100 per preference share redeemable at par has 3% floatation cost and 10 years of maturity. The market price per preference share is ₹ 108. (5) The tax rate applicable to the company is 30%. (6) The shareholder's tax liability may be assumed as 25% whereas the capital gain tax is 20%. The CFO of the company is keen at understanding the cost of capital. Accordingly, you are appointed to complete the following tasks: (2) Further the company also intends to know the market price of the equity shares at the end of the current year using MM approach along with citing the assumptions of the theory.