The capital structure of MoonShine Ltd. consisting of 12% Debenture, 9% Preference Share and Equity Shares of Rs.100 each, is in the proportion of 3:2:5. The company is thinking of introducing further capital to meet expansion needs by taking 14% Term Loan from financial institution. As a result of the proposal, the proportion of Debenture, Preference Shares and Equity Shares capital would get reduced by 1/10, 1/15 & 1/6 respectively.
In the light of above proposal, calculate the change of WACC assuming 50% tax rate, market price of equity shares of Rs.100 each. Expected Dividend of Rs.9 each share at the end of the year and growth rate of dividend 5%. No change in dividend. Dividend growth and the market price of shares are expected after availing the proposed loan.
Last edited by a moderator: Jul 12, 2013
