WorksheetsCost of Debt and Preference Share Capital Worksheet
Total questions: 14
Worksheet time: 7mins
A company issues 12% debentures of face value ₹100 at par. Corporate tax rate is 30%. What is the after-tax cost of debt Kd?
12%
8.4%
3.6%
18%
A firm issues 10% debentures of face value ₹100 at ₹95. Tax rate is 40%. What is the approximate after-tax cost of debt Kd, assuming irredeemable debt?
6.32%
6.00%
10.53%
4.00%
A company issues 11% redeemable debentures of face value ₹100 at ₹96, redeemable at ₹104 after 4 years. Before-tax cost of debt Kd (approx.) is:
11.0%
11.5%
12.0%
12.5%
A firm issues 10% preference shares of face value ₹100 at ₹90 (irredeemable). What is the cost of preference share capital Kp?
9.0%
10.0%
11.1%
12.5%
Redeemable preference shares of face value ₹100 are issued at ₹95, redeemable at ₹105 after 5 years with a dividend rate of 12%. Approximate cost of preference share capital Kp is:
11.58%
12.00%
12.42%
13.00%
Equity shares of a company are quoted at ₹50. Last dividend paid was ₹4 per share and dividends are expected to grow at 6% per year. Using dividend growth model, cost of equity Ke is:
8.0%
12.0%
14.0%
16.0%
Market price of an equity share is ₹40. Expected dividend at year-end is ₹5 and no growth is expected. What is the cost of equity Ke using the dividend price approach?
8.0%
10.0%
12.5%
15.0%
A company’s equity shares trade at ₹80. It paid a dividend of ₹6 just now and dividends are expected to grow at 5% indefinitely. Approximate cost of equity Ke is:
7.5%
12.5%
13.0%
15.0%
A firm has the following capital structure at market values: • Equity: ₹12,00,000 (cost Kₑ=16%) • Preference: ₹4,00,000 (cost Kₚ=10%) • Debt: ₹4,00,000 (after-tax cost K_d=7%) What is the weighted average cost of capital (WACC)?
12.0%
13.2%
14.0%
15.0%
A firm’s capital consists of: • Equity ₹5,00,000, Kₑ=18% • Debt ₹3,00,000, after-tax K_d=8% Using market value weights, WACC is:
10.5%
12.8%
14.3%
15.0%
A project is evaluated using the firm’s WACC as discount rate. Equity Kₑ=20%, preference Kₚ=12%, debt K_d=9% after tax. Market value weights: equity 50%, preference 10%, debt 40%. WACC equals:
14.0%
15.4%
16.2%
18.0%
A company issues 9% irredeemable debentures at ₹90 (face value ₹100). Tax rate is 30%. The after-tax cost of debt K_d is closest to:
9.0%
7.0%
Equity share of a company sells at ₹25. Expected dividend next year is ₹3 and dividends are expected to grow at 4% per year. Cost of equity Kₑ is:
12.0%
14.0%
16.0%
18.0%
The capital of a company at market value is: • Equity ₹9,00,000, Kₑ = 15% • Debt ₹6,00,000, after-tax Kₐ = 6% What is the WACC?
9.0%
10.2%
11.4%
12.0%
