vijay ltd equity share is selling at rs. 50. the company expects its eps of rs. 7.5. co. has a policy of paying 60 % of its earnings as dividends.the co. earns a return of 10% on its re invested profit.
co. has plans for expansion for which it wants to issue a 10 year, 8 percent rs 1000 per bond at a premium of rs 20 .underwriting commission = rs 40/bond. tax rate = 35 %.
after issue of bonds co. wishes to have debt equity ratio of 30:70.
work out cost of equity,after tax cost of bond and overall cost of capital.
doubt: how to deal with retained earnings and corresponding overall cost of cap in this ques.?????
CAclubindia
