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) - Market Value Weights Given: Number of Equity Shares = 45,000 Market Price per Equity Share = ₹20 1. Calculate Market Value of Equity Capital: Market Value of Equity Capital = 45,000 shares × ₹20/share = ₹9,00,000 2. Capital Structure of PQ Gems Ltd. (Market Values): Source of finance Amount (₹) Weight (W) Cost of Capital after tax (K) (%) Weighted Cost (W × K) (%) Equity capital 9,00,000 9,00,000 / 13,00,000 ≈ 0.6923 14 0.6923 × 14 ≈ 9.6922 Retained earnings 1,50,000 1,50,000 / 13,00,000 ≈ 0.1154 14 0.1154 × 14 ≈ 1.6156 10% Preference capital 1,00,000 1,00,000 / 13,00,000 ≈ 0.0769 10 0.0769 × 10 ≈ 0.769 9% Debentures 3,00,000 3,00,000 / 13,00,000 ≈ 0.2308 4.5 0.2308 × 4.5 ≈ 1.0386 Total 14,50,000 1.1154 13.1154 Note: The provided solution uses a total market value of ₹13,00,000 and weights of 0.69, 0.08, 0.23 for Equity, Preference, and Debentures respectively, and omits Retained Earnings from the market value calculation. Assuming the solution's approach where Retained Earnings are not separately weighted in market value calculation, or are implicitly included in equity market value, and the total market value is 13,00,000: Source of finance Amount (₹) Weight (W) Cost of Capital after tax (K) (%) Weighted Cost (W × K) (%) Equity capital 9,00,000 9,00,000 / 13,00,000 ≈ 0.69 14 0.69 × 14 = 9.66 Preference capital 1,00,000 1,00,000 / 13,00,000 ≈ 0.08 10 0.08 × 10 = 0.80 9% Debentures 3,00,000 3,00,000 / 13,00,000 ≈ 0.23 4.5 0.23 × 4.5 = 1.035 Total 13,00,000 1.00 11.495 The Weighted Average Cost of Capital (WACC) based on market values (following the solution's implied calculation) is 11.495% .