X Ltd. issues 1,000, 6% preference shares of ₹100 each redeemable after a maximum period of 20 years at face value. The floatation cost is ₹4 per share. Find the cost of capital.
CS Executive · Financial and Strategic Management · PYQS · December 2018
X Ltd. issues 1,000, 6% preference shares of ₹100 each redeemable after a maximum period of 20 years at face value. The floatation cost is ₹4 per share. Find the cost of capital.
Answer & Explanation:
Answer 2(a) Issue price of share = ₹100 Floatation cost = ₹4 Net Proceeds (SV) = ₹96 Redeemable value (RV) = ₹100 Dividend (D) = ₹6 per share Cost of Preference share be K p K p = D + (RV-SV)/N / (RV+SV)/2 K p = 6 + (100-96)/20 / (100+96)/2 = 6.33%
Topics: Financial Management
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