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Assignment # 02

Last Date Jul 21, 2014

Assignment Question:
Seasons Corporation is a listed company which produces cooking oil. Now the company has
an intention to introduce its new product range of “Frozen items” in the market. For this
purpose a new plant is required. This project will require a lot of funds. Company has a plan
to finance it by issuing bonds and stocks in the following manner:

1. Bonds issued to five companies:
Company Book value of
Bond (Rs.)
YTM (%)
KK Company 1,500,000 6.5
Allied Company 1,000,000 6
N&T Technologies 2,000,000 8
Ziema Company 2,5000,00 7.5
Aazam Textile Company 3,000.000 5

2. Common stock:
65,000 common shares issued at Rs.100 per share. Current market price of common stock is
Rs.102 per share. Divided per common share in current year is Rs.5. Growth rate is 10%.

3. Preferred stock:
100,000 preferred stocks at par value of Rs.35 per share and market value of
preferred stock is Rs.3,500,000. Dividend per preferred share is Rs.3.2.
Income tax rate is 30%.

As a financial manager of the company, you are required to calculate:
1. After-tax cost of debt
2. Cost of equity
3. Cost of preferred stock
4. Weighted Average Cost of Capital (WACC)


Please read the following instructions carefully before preparing the assignment solution:
 Do prepare the solution after completely reading and understanding the questions.
Put your genuine efforts in order to understand the concepts and calculations thoroughly.
Provide complete calculations for all parts of the questions.


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------------------------< BEST OF LUCK >------------------------

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Replies to This Discussion

Sana .. Are you sure this is right?



file hi opn ni ho rahy pretty angel

in part 1)

After tax cost of debt = interest rate x (1 – tax rate)

what is the value of interest rate???

saima khan...

intrest rate = 33%

My answers...

1 .Afer – tax cost of debt  = 23.1%

2.cost of equity = 14.90

3. Cost of prefferd  = 9.14

4. Wacc =  9.0188       

if m wrong do correct....                                                                                                    

.Afar – tax cost of debt = interest rate * (1 – tax rate)

                                     = 33% * (1- 30%)

                                    = 0.33 * (1-0.3)

                                   = 0.33 * 0.7

                                   = 23.1%

mano ap ne 4th wacc kiesy solve kia hain ?

rabia ap ne cost of equity kaise solved kia hae

33% kahan se aya....?

i get 3 answer 4th kasy ho ga

Afar – tax cost of debt = 23.1
Cost of equity = 14.9
Cost of preferred stock = 9.14

wacc kaise nikalna hai

aap cost of equity ghalatt nickal rahe hain na. Dividend nect year ka laina hai current year ka nahi. janb.


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