Question

LT India Ltd has the following capital structure, which it considers optimal: Debt 35% Equity shares 65% Total 100% Applicable tax rate for the company is 25%. Risk free rate of return is 6%, average equity market investment has expected rate of return of 12%. The company’s beta is 1.10. Debt will bear an interest rate of 9% p.a.

Calculate

a. component cost of debt and equity shares assuming that the company does not issue any additional equity shares. 

b. Weighted Average Cost of Capital (WACC). 

Answer 1

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