Assignment II Caselet

The table below gives the relevant data for Bata Hydro Electric company for the years 2002 to 2010. Using the data, figure out the weighted average cost of capital of the company using market value weights . Financial Data for Bata Hydro-Electric power company Book Value Market Value (Rs in Crores) (Rs in crores) Debentures (8 per cent due 2014-2017) 1.00 0.87 Debentures (11 per cent due 2021-2025) 2.23 1.76 Long-term loans(11 per cent) 2.77 2.77 Preference capital (7 per cent) 0.89 0.45 Net worth 8.87 2.90 Equity Data 2002 2003 2004 2005 2006 2007 2008 2009 2010 Earnings per Rs 17.4 16.1 13.1 17.7 16.4 21.8 20.3 20.3 29.0 share Dividend per Rs 13.0 13.0 5.0 13.0 13.0 13.0 13.0 13.0 15.0 share Bonus 1:12 Adjusted earnings* Rs 17.4 16.1 13.1 19.2 17.8 23.6 22.0 22.0 31.4 per share Adjusted dividend*per Rs 13.0 13.0 5.0 14.1 14.1 14.1 14.1 14.1 16.3 share # Market price 101.25

*Adjusted for the bonus declaration in the ratio of 1:12 in 2005 # Market price is the average of high and low in March 2010 8 % debentures, due 2014-2017: These debentures are repayable in 4 equal annual installments beginning 2014.The market value per Rs 100 face value of the debenture was Rs 87 as on 31st March 2010. 11% debentures, due 2021-2025 : These debentures are repayable in 5 annual installments beginning 2021.The market value per Rs 100 face value of these debentures was 79 on 31st March 2010. Market Price of Preference shares in March 2010 is Rs.50. Assume an effective tax rate of 57.75 %.