A Private Ltd. Co. has assets worth ₹32,00,000 as on 31st March, 2018 that has been financed as follows: Equity Shares of ₹100 each: ₹18,00,000 General Reserve: ₹3,60,000 Debt: ₹10,40,000 For the year ended on 31st March

1. Calculation of Cost of Debt (K d ): Interest on borrowed capital = 8% of ₹10,40,000 = ₹83,200 K d = Interest Rate (1 - Tax Rate) = 0.08 (1 - 0.40) = 0.08 x 0.60 = 0.048 or 4.8% 2. Calculation of Cost of Equity (K e ): Total Profits Before Interest and Taxes (EBIT) = ₹6,23,000 Less: Interest = ₹83,200 Earnings Before Tax (EBT) = ₹5,39,800 Less: Tax (40%) = ₹2,15,920 Profit Available for Equity Shareholders = ₹3,23,880 Number of Equity Shares = ₹18,00,000 / ₹100 = 18,000 shares Earnings Per Share (EPS) = Profit Available for Equity Shareholders / Number of Equity Shares = ₹3,23,880 / 18,000 = ₹17.9933 per share (approx ₹18 per share as per solution) Market Price Per Share (MPS) = ₹150 K e = (EPS / MPS) x 100 = (₹18 / ₹150) x 100 = 0.12 x 100 = 12% 3. Calculation of Market Value of Components: Equity Share Capital (Market Value) = Number of Equity Shares x Market Price Per Share = 18,000 shares x ₹150 = ₹27,00,000 General Reserve: The solution implies that General Reserve is treated as part of equity and its market value is derived from the equity market value. However, the problem statement provides a book value for General Reserve. The solution uses a derived value for General Reserve to make the total market value match the total assets, or it might be a typo in the solution's table. Let's follow the solution's approach for WACC calculation which uses the total market value of equity (including reserves) as one component. The solution's table shows General Reserves as a separate component with a specific amount and cost. Let's re-evaluate based on the solution's table. The solution's table for WACC calculation based on market value shows: Source Amount (₹) Weight Specific cost of capital Weighted specific cost of capital Equity share capital 27,00,000 0.7219 0.12 0.086628 Debt 10,40,000 0.2781 0.048 0.013348 Total 37,40,000 1.0000 0.099976 Note: The solution provided in the source PDF has an alternative calculation for WACC where General Reserves are explicitly listed with an amount of ₹4,50,000 and a cost of 12%. This implies that the total market value of equity (Equity Shares + General Reserves) is ₹27,00,000 + ₹4,50,000 = ₹31,50,000, which is not ₹37,40,000. The first WACC table in the solution seems to combine equity and reserves into one 'Equity share capital' component with a market value of ₹27,00,000. Let's stick to the first WACC table provided in the solution which seems more consistent with the market value of equity shares calculated. Total Market Value = Market Value of Equity Shares + Market Value of Debt = ₹27,00,000 + ₹10,40,000 = ₹37,40,000 4. Calculation of WACC: Source Amount (₹) Weight (Amount/Total) Specific Cost of Capital Weighted Cost Equity Share Capital 27,00,000 27,00,000 / 37,40,000 = 0.7219 12% (0.12) 0.7219 x 0.12 = 0.086628 Debt 10,40,000 10,40,000 / 37,40,000 = 0.2781 4.8% (0.048) 0.2781 x 0.048 = 0.013348 Total 37,40,000 1.0000 0.099976 Therefore, the weighted average cost of capital (WACC) is 0.099976 or approximately 10%.