The following is the capital structure of X Ltd. as on 31st Dec 2003
Rs in million Equity capital (paid up) 563.50
Reserves and surplus 485.66
10% Irredeemable preference shares 56.00
10% Redeemable preference shares 28.18
15% Term loans 377.71
Total 1,511.05
The share of the company is currently selling for Rs 36. The expected dividend next year is Rs 3.60 per share anticipated to be growing at 8% indefinitely. The redeemable preference shares were issued on 1 January 1997 with twelve- year maturity period. A similar issue today will be at Rs 93. The market price of 10% irredeemable preference share is Rs 81.81.
The company had raised the term loan from IDBI in 1993. A similar loan will cost 10% today.
Assume an average tax rate of 35 per cent. Calculate the weights average cost of capital for the company using book- value weights.