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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 >------------------------

Views: 4894


Replies to This Discussion

phir kia value ay gi waseem Mushtaq

cost of equity = 15.4 ae gi. cost of equity.

please 4th ko kaisey solve kiya hai bata dain

debt security di hain. equity aap ko di hai common our preferred main ... ooooor kuch janab. Tariq bhai final solution dein. Thanks.

mano plz tell me how could you calculate wacc???????????????????????????

thnx mano rano :)

just plugin the values in the formulae given by me.

Add all the YTMs of bonds this will give you the value which u will use as interest rate .In the given case its 33%

Please Yar Apni WACC computation send karo..

1 ) _ After - tax cost of debt = 23.1 %

2) _ Cost of equity = 14.901 %

3) _ Cost of preferred stock = 9.143

4) _ WACC =? kya uper 3 Ans right hy or wrong?

WACC kysy aye ga? please tell Me

cost equity mera tu 15 aa raha ha

wo kasy

Dividen Next Year Growth Pr Lyna hey... 5+10% -=5.1


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