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Weighted Average Cost of Capital(WACC) by book value & market value method

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Sudhanshu

Assistant Manager at Union Bank of India

37 Points Posted on 06 December 2020

The following is the capital structure of Alpha Limited as on 31st March 2020
Equity Shares : 10000 shares ( of Rs 100 each) Rs 10,00,000
12% Preference Shares ( of Rs 100 each) Rs 10,00,000
10% Debentures Rs 12,00,000

The market price of the company’s share is Rs 120 and it is expected that a dividend of Rs 10 per share would be declared by the company . The dividend growth rate is 5%. If the tax rate is 30%, calculate Weighted Average Cost of Capital(WACC) by book value & market value method. Assume market value of Preference shares and Debentures to be same as the book value. Comment on the results.

Replies (2)

Quick Summary

This discussion explores the calculation of the Weighted Average Cost of Capital (WACC) for Alpha Limited, using both book value and market value approaches. It provides the company's capital structure details and market share price, along with dividend and growth rate information. The objective is to compute WACC under different valuation methods and comment on the resulting figures.

sabyasachi mukherjee

Profession

28261 Points Posted on 07 December 2020

Sudhangsu these are all questions of Management of Advanced Accountancy.(MAC)
So I must say that you must know the formulae
Weighted Average Cost of Capital.