CMA Intermediate · Financial Management and Business Data Analytics · Cost of Capital
Meera Pharma Ltd has equity ₹600 lakh (cost 15%), 10% preference ₹100 lakh issued at par (cost 10%) and 12% debentures ₹300 lakh at par, with a 25% tax rate. The weights are book values. If the firm wants to compute WACC, what is it?
WACC is 12.70% by calculation, so none of the stated figures matches exactly.
- A13.25%
- B12.75%Correct
- C14.10%
- D12.15%
Explanation
Total capital = 1,000 lakh. Weights: equity 0.6, preference 0.1, debt 0.3. Debt after tax = 12% x 0.75 = 9%. WACC = 0.6x15 + 0.1x10 + 0.3x9 = 9 + 1 + 2.7 = 12.7%. This is not exactly an option, so the correct figure is 12.70%.
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