AB Infra Projects Limited operates in the construction and infrastructure sector, executing large-scale public and private projects. The company has…

AB Infra Projects Limited operates in the construction and infrastructure sector, executing large-scale public and private projects. The company has shown consistent profitability and strong project execution capabilities, which is supported by a balanced mix of equity and long-term debt financing. With several new infrastructure projects under consideration, the management now wants to review the cost of capital to ensure that the company's financing decisions are efficient and aligned with the company's strategic growth objectives. The finance department is evaluating the cost of equity, cost of preference shares and cost of debentures to determine the company's overall Weighted Average Cost of Capital (WACC) and maintain financial stability. The capital structure of AB Infra Projects Limited is as follows: Particulars Amount (₹) Equity Shares (face value 10 per share) 60,00,000 12% Preference Share Capital 20,00,000 10% Convertible Debentures 40,00,000 Total Capital of the Company 1,20,00,000 The following are some of the additional information provided by the company relating to the above-mentioned capital structure: (i) The risk-free rate of return (R f ) is 6%, equity beta (β) is 1.25 and equity risk premium (R p ) is 8%. (ii) The face value of 12% preference shares is 100 each. These shares are irredeemable, having a flotation cost of 4%. The current market price of preference share is 100 per share. (iii) 10% convertible debentures of 100 each are issued with a maturity period of 5 Years. At maturity, the debenture holders will have an option to convert the debenture into equity shares of the company in the ratio of 1: 4 (4 shares for each debenture). The current market price of the equity share is 120 each and company expects share prices to grow at an average rate of 5% per annum in the future. The current market price per debenture is 150. (iv) The rate of corporate income tax is 30%. Based on the above information, you are required to answer the following questions 1 to 5: