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# Cost of capital

Financial Management

Eq sh cap = rs40lac RnS = rs60lac EPS = 7.50 Ke = 15%, Kre = 12.5% Why we do consider ke = kre = 15% ?

Sushmita Chowdhury

CA Inter

5

24-Mar-23 01:17

136

Normally Ke will be higher than Kre. Only when floatation cost is not given, Kre=Ke

Angel Maria Varghese

CA Inter

8K+

24-Mar-23 07:08

Angel Maria Varghese

Normally Ke will be higher than Kre. Only when floatation cost is not given, Kre=Ke

But how is it equal, kre is 12.5%, ke 15% Then why we consider equal ?

Sushmita Chowdhury

CA Inter

5

24-Mar-23 10:34

Sushmita Chowdhury

But how is it equal, kre is 12.5%, ke 15% Then why we consider equal ?

Question number and source material details please

Sriram Somayajula

24-Mar-23 10:44

Question number and source material details please

I’ve attached the qsn

Sushmita Chowdhury

CA Inter

5

24-Mar-23 11:07

Sushmita Chowdhury

I’ve attached the qsn

Sriram Somayajula

24-Mar-23 11:45

A friend of mine asked me this qsn, I was unable to solve it so posted it here

Sushmita Chowdhury

CA Inter

5

24-Mar-23 11:46

Also, how did you arrive at KRE as 12.5%

Sriram Somayajula

24-Mar-23 11:47

Sushmita Chowdhury

A friend of mine asked me this qsn, I was unable to solve it so posted it here

In the solution they took kre = ke = 15% But according to my calculation kre 12.5%, as per the formula Is there any diff concept regarding market value wacc as related to the qsn ?

Sushmita Chowdhury

CA Inter

5

24-Mar-23 11:48

Also, how did you arrive at KRE as 12.5%

Eps/mv x100 = kre 7.50/60 x100 = 12.5%

Sushmita Chowdhury

CA Inter

5

24-Mar-23 11:51

Sushmita Chowdhury

Eps/mv x100 = kre 7.50/60 x100 = 12.5%

I’m soo sorry Sir, it’s my calculation mistake :(

Sushmita Chowdhury

CA Inter

5

24-Mar-23 13:36

Sushmita Chowdhury

I’m soo sorry Sir, it’s my calculation mistake :(

As per the information provided Ke = EPS/MPS x 100 = 7.5/50 x 100 = 15% As there No floatation costs Kre = Ke = 15%

CA Inter

55

24-Mar-23 14:51

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