COST OF CAPITAL IN FINANCIAL MANAGEMENT AFTERSCHO☺OL – DEVELOPING CHANGE MAKERS CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME – World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship OPEN FOR ALL FREE FOR ALL
COST OF CAPITAL IN FINANCIAL MANAGEMENT Dr. T.K. Jain. AFTERSCHO☺OL Centre for social entrepreneurship Bikaner M: 9414430763 [email_address] www.afterschool.tk , www.afterschoool.tk
Jitu Global Inc. issues 10% preference shares at a discount of 10%. What is the cost of capital?
Let us assume that the face value is Rs. 100. Dividend will be 10.
Cash realised is 100 – 10 = 90
Ke (cost of capital) 10 / 90 =11%
Goti Global Inc. issues 20% preference shares at a premium of 5%. What is the cost of capital?
Let us assume that the face value is Rs. 100. Dividend will be 20
Cash realised is 100 +5 = 105
Ke (cost of capital) 20/105 =19%
Goti Global Inc. issues 20% preference shares at a premium of 5% for 10 years. He will redeem these at 10% premium. What is the cost of capital?
Let us assume that face value is 100.
Dividend = 20
Redemption value 110, realised value 105
Ke = (20 + ((110 – 105) / 10)) / (average of 110 and 105)
Dhawal World Inc. has growth rate of 15%. Current market price of his shares are 5000. Last year he gave Rs. 10 as dividend. What is the cost of retained earnings of this company as per DCF approach?
Formulae (Projected dividend of next year)/ (current market price) + growth rate
=(10*1.15) / 5000 + .15 = 15.23% answer.
Vinod & Pankaj Inc. have beta of 1.1. Market rate is 14%. Risk free rate is 8%. What is the cost of capital of this company as per CAPM?
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