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A company has the following long-term capital outstanding as on 31 March 2008: (a) 10 per cent debentures with a face value of Rs 500,000. The debentures were issued in 2003 and are due on 31 March 2010. The current market price of a debenture is Rs 950. (b) Preference shares with a face value of Rs 400,000. The annual dividend is Rs 6 per share. The preference shares are currently selling at Rs 60 per share. (c) Sixty thousand ordinary shares of Rs 10 par value. The share is currently selling at Rs 50 per share. The dividends per share for the past several years are as follow:
Year Rs Year Rs
2003 2.00 2000 2.80
2004 2.16 2001 3.08
2005 2.37 2002 3.38
2006 2.60 2003 3.70
Assuming a tax rate of 35 per cent, compute the firm’s weighted average cost of capital.
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