Following is the capital structure of PQ Gems Ltd.: Source of finance Amount (₹) Cost of Capital after tax (%) Equity capital (45,000 shares) 4,50,000 14 Retained earnings 1,50,000 14 10% Preference capital 1,00,000 10 9

Calculation of Weighted Average Cost of Capital (WACC) - Book Value Weights Capital Structure of PQ Gems Ltd. (Book Values): Source of finance Amount (₹) Weight (W) Cost of Capital after tax (K) (%) Weighted Cost (W × K) (%) Equity capital 4,50,000 4,50,000 / 10,00,000 = 0.45 14 0.45 × 14 = 6.30 Retained earnings 1,50,000 1,50,000 / 10,00,000 = 0.15 14 0.15 × 14 = 2.10 10% Preference capital 1,00,000 1,00,000 / 10,00,000 = 0.10 10 0.10 × 10 = 1.00 9% Debentures 3,00,000 3,00,000 / 10,00,000 = 0.30 4.5 0.30 × 4.5 = 1.35 Total 10,00,000 1.00 10.75 The Weighted Average Cost of Capital (WACC) based on book values is 10.75% .