ABC Ltd. has 10,000 shares of ₹7 each, ₹10,000, 12% debentures and ₹20,000 as short-term loan @10%. Tax rate for the company is 30%. Assume the cost of equity capital as 20%. Calculate weighted average cost of capital at

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2015
ABC Ltd. has 10,000 shares of ₹7 each, ₹10,000, 12% debentures and ₹20,000 as short-term loan @10%. Tax rate for the company is 30%. Assume the cost of equity capital as 20%. Calculate weighted average cost of capital at book value.

Answer & Explanation:

Calculation of weighted average cost of capital at book value Source of capital Book value (1) Weightage of total fund (2) Cost after tax (3) Weighted cost (2)*(3) Equity share capital ₹70,000 0.70 0.20 0.14 12% Debentures ₹10,000 0.10 0.12 (1-0.30) = 0.084 0.0084 10% short term loan ₹20,000 0.20 0.10 (1-0.30) = 0.07 0.014 ₹1,00,000 0.1624 WACC = 16.24%

Topics: Cost of Capital

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