# Capital Investment and Financing Decisions.

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1)Find the present value of Rs. 2,000 due in 6 years if money is worth compounded semi-annually. (b) Ascertain the present value of an amount of Rs. 8,000 deposited now in a commercial bank for a period of 6 years at 12% rate of interest.

2)You are required to determine the weighted average cost of capital (K) of the K.C. Ltd. using (i) book value weights; and (ii) market value weights. The following information is available for you perusal. The K.C. Ltd.’s present book value capital structure is:
Debentures (Rs. 100 per debenture) 8,00,000
Preference shares (Rs. 100 per share) 2,00,000
Equity shares (Rs. 10 per share) 10,00,000
20,00,000
All these securities are traded in the capital markets. Recent prices are debentures @ Rs. 110, preference shares @ Rs. 120 and equity shares @ Rs. 22. Anticipated external financing opportunities are:
Rs. 100 per debenture redeemable at par : 20-year maturity, 8% coupon rate, 4% flotation costs, sale price Rs. 100.
Rs. 100 preference share redeemable at par: 15-year maturity, 10% dividend rate, 5% floatation costs, sale price Rs. 100.
Equity shares Rs. 2 per share flotation costs, sale price Rs. 22.
In addition, the dividend expected on the equity share at the end of the year Rs. 2 per share; the anticipated growth rate in dividends in 5% and the company has the practice of paying all its earning in the dorms of dividends. The corporate tax rate is 50%

• Capital Investment and Financing Decisions. -

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