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XYZ, a Telecom Company, has the following capital structure,which is considered to be optimal: Debentures 20% Preferred stock 20% Common equity 60% Total 100% During this tax year, company is liable to pay tax @ 35%, andinvestors are expecting that earnings and dividends will grow at a constant rate of 10%.Current year's dividend is Rs. 4 per share and the common stocks are selling at Rs. 60per share. XYZ can obtain new capital in the following ways: Preferred stock: New preferred stock with adividend of Rs. 15 can be sold to the public at a price of Rs. 97 per share. Debentures: Debentures can be sold at aninterest rate of 13%. You are required to ' Determine the cost of each capital structure componentand ' Calculate the weighted average cost of capital. Jan 16 2014 11:57 PM

 

Solution ID:609217 | This paper was updated on 26-Nov-2015

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