The Capital Structure of Samyaktva Limited is as follows: Amount (in ₹) 12% Debentures 3,50,000 14% Pref. Shares 4,50,000 Equity shares (Face value…

CA Intermediate · Financial Management and Strategic Management · RTP · January 2025
The Capital Structure of Samyaktva Limited is as follows: Amount (in ₹) 12% Debentures 3,50,000 14% Pref. Shares 4,50,000 Equity shares (Face value of 10 each) 8,50,000 16,50,000 Additional Information: 1.100 per debentures redeemable at premium of 6% with floatation cost of 5% & 5 years of maturity. The current market price of the debenture is 115 2.100 per preference shares redeemable at a premium of 10%, issued at discount of 2% with a floatation cost of 5% on the issue price. The current market price per preference share is 108. It has maturity of 10 years 3. An equity share has a floatation cost of 5with a market price per share currently quoted at 30. Samyaktva Limited paid a last dividend of 4and the company is expected to give an annual growth rate of 9% on the dividends. The company has a practice of paying all the earnings in the form of dividends. 4. Corporate Taxation rate is at 25% CALCULATE WACC using market value weights

Suggested Answer and Working Notes:

WN 1: Calculation of Cost of Debt Kd = [I(1-t) + (RV-NP)/n] / [(RV+NP)/2] RV = 100 + 6% = 106 n = term = 5 years t = tax = 0.25 NP = Issue Price - Floatation cost = 115 – 5% (Issue price will be at Market price and no Face Value) = 109.25 Kd = [12(1-0.25) + (106-109.25)/5] / [(106+109.25)/2] Therefore Kd = 7.76% WN 2: Calculation of Cost of Preference Shares Kp = [PD + (RV-NP)/n] / [(RV+NP)/2] RV = 100 + 10% = 110 n = term = 10 years NP = Issue Price - Floatation cost Issue Price = (108 – 2%) = 105.84 Net Proceeds = 105.84 (-) 5% = 100.55 Kp = [14 + (110-100.55)/10] / [(110+100.55)/2] Therefore Kp = 14.19% WN 3: Calculation of Cost of Equity Since growth rate is given, Ke is to be calculated by using Gordon's formula As per Gordon, Ke = D1/Po + g Where, D1 = Expected dividend at the end of Year 1 Po = Current Market Price (–) Floatation cost G = growth rate in dividends Ke = (4+9% x 4)/(30-5) + 0.09 Ke = 26.44% Calculation of WACC using Market Value Weights Sources Amount of Capital (₹) Weights (W) Cost (K) W X K Debentures 4,02,500 (3,500 x 115) 0.1171 7.76 (WN 1) 0.9087 Preference shares 4,86,000 (4,500 x 108) 0.1413 14.19 (WN 2) 2.00 Equity shares 25,50,000 (85,000 x 30) 0.7416 26.44 (WN 3) 19.6079 34,38,500 Ko = 22.52%

Topics: Part-A: Financial Management

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