MNP Ltd. is a multinational company having its operations spread mostly in India and neighbouring countries of India. The promotors of the company…

MNP Ltd. is a multinational company having its operations spread mostly in India and neighbouring countries of India. The promotors of the company believed that capital structure of a company must be kept flexible and balanced, where proper mix should always be maintained between debt and equity. Such mix of debt and equity should be reviewed from time to time keeping in mind the changing situation of India and the global scenario. The capital structure of MNP Ltd. is as under: 9% Debentures 2,75,000 11% Preference shares 2,25,000 Equity shares (face value:10 per share) 5,00,000 Total capital of the company 10,00,000 The following are some of the additional information provided by MNP Ltd. relating to the above mentioned capital structure. (i) 100 per debenture redeemable at par has 2% floatation cost and 10 years of maturity. The market price per debenture is 105. (ii) 100 per preference share redeemable at par has 3% floatation cost and 10 years of maturity. The market price per preference share is 106. (iii) Equity share has 4floatation cost and market price per share of 24. The next year expected dividend is 2 per share with an annual growth of 5%. The firm has a practice of paying all earnings in the form of dividends. (iv) Corporate Income-tax rate is 35%. Since the company is a multinational company market value weights are preferred over book value weights when calculating the Weighted Average Cost of Capital (WACC) for several reasons. The company believes that market values reflect the current market perception of a company's financial health and future prospects. This is more relevant for calculating the cost of capital today, as investors base their decisions on current market conditions. Book values, based on historical accounting principles, may not accurately represent the true economic value of the company's capital components. Market values capture the actual cost that a company would incur if it were to raise new capital in the current market. Book values might not reflect the true cost of debt due to factors like changes in interest rates or creditworthiness. Similarly, book value of equity might not reflect the current investor expectations for future dividends and growth. Market values are readily available through stock prices and market interest rates. Obtaining accurate book values, especially for intangible assets, can be a complex and time-consuming process. On the basis of this information provided above you are required to answer the following MCQs (1 to 5):