Question No: 01
ABCD, a Textile mill, has four main businesses. Beta and percentage of each business is
As follows:
Business Investment in each business Rs. Beta
T-Shirts 100,000 1.50
Jackets 200,000 (0.50)
Children Garments 300,000 1.25
Pants & Trousers 400,000 0.75
Requirement: (5+5+5 Marks)
• What is the beta of ABCD Corporation?
• After the analysis of the market, following information was gathered: risk free
Rate is 6% and market risk premium is 5%. What is the ABCD Corporation’s
Required rate of return?
• The above mentioned company is considering the change in its strategic focus due
To changing market trends. As a result, it want to focus more on children
Garments, now 50% of its total investment will be in Children Garments and this
Change will reduce its reliance on Pants & Trousers business, while the
Investment in T-Shirts and Jackets will remain the same. What will be the
Shareholder’s required rate of return if ABCD adopts these changes?
Question No: 02 Question No: 02
XYZ, a Telecom Company, has the following capital structure, which is considered to be
Optimal:
Debentures 20%
Preferred stock 20%
Common equity 60%
Total 100%
During this tax year, company is liable to pay tax @ 35%, and investors are expecting
That earnings and dividends will grow at a constant rate of 10%. Current year’s dividend
Is Rs. 4 per share and the common stocks are selling at Rs. 60 per share.
XYZ can obtain new capital in the following ways:
Preferred stock: New preferred stock with a dividend of Rs. 15 can be sold to the public
At a price of Rs. 97 per share.
Debentures: Debentures can be sold at an interest rate of 13%.
You are required to: (9+6 Marks)
• Determine the cost of each capital structure component and
• Calculate the weighted average cost of capital.
