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Dividends just paid 24.00

Dividends over the last three years

1 year ago 22.90

2 years ago 21.70 Growth rate

3 years ago 20.70

Current share price 120.00

What is the cost of equity?

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Capital structure of a company

Rs 1 ordinary shares 12 million

8% preference shares 6 million

Bank loan 7.2 million

Total 25.2

Other data:

Market price Ordinary shares 2.25 Rupees

Market price 8% preference shares 0.92 Rupees

Tax rate 0.3

Beta 1.75

Risk free rate of interest 0.08

Market risk premium 0.04

Interest cost of the year 1055640

Loan at the start of the year 8 million

Type of finance Market value Cost Weightage WC

Share capital

Pref shares

Bank loan

Weighted Average Cost of Capital

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Infosys ITC ACC WIPRO MARUTHI Infosys ITC ACC WIPRO

Date Close Close Close Close Close NIFTY Sensex Close Close Close Close

200604 1589 102 1014 323 924 3558 12043

200605 1454 83 762 270 735 3071 10399

200606 1539 91 784 308 798 3128 10609

200607 1654 84 843 295 787 3143 10744

200608 1809 96 910 311 861 3414 11699200609 1848 94 993 315 981 3588 12454

200610 2095 95 968 323 969 3744 12962

200611 2180 93 1133 359 925 3955 13696

200612 2241 88 1086 363 927 3966 13787

200701 2244 87 1020 368 937 4083 14091

200702 2078 86 900 337 840 3745 12938

200703 2013 76 735 335 820 3822 13072

200704 2049 80 839 343 803 4088 13872

200705 1920 82 856 327 818 4296 14544

200706 1929 77 934 311 743 4318 14651200707 1977 86 1060 297 843 4529 15551

200708 1855 85 1066 289 868 4464 15319

200709 1897 95 1195 276 1000 5021 17291

200710 1839 89 1078 303 1074 5901 19838

200711 1604 94 1089 276 1012 5763 19363

200712 1768 105 1025 315 990 6139 20287

200801 1504 98 783 248 849 5137 17649

200802 1547 101 793 261 867 5224 17579

200803 1430 103 826 255 830 4735 15644

200804 1754 110 759293

742 5166 17287200805 1958 109 661 305 765 4870 16416

200806 1735 94 523 263 618 4041 13462

200807 1583 93 584 250 575 4333 14356

200808 1749 94 562 259 650 4360 14565

200809 1398 94 612 204 687 3921 12860

200810 1382 78 493 163 564 2886 9788

200811 1241 87 406 146 536 2755 9093

200812 1118 86 478 140 520 2959 9647

200901 1306 90 505 139 571 2875 9424

200902 1231 92 540124

678 2764 8892200903 1324 92 577 147 775 3021 9709

200904 1507 94 653 198 816 3474 11403

200905 1602 92 783 229 1022 4449 14625

200906 1777 95 769 227 1065 4291 14494

200907 2064 125 881 294 1413 4636 15670

200908 2132 115 809 330 1437 4662 15667

200909 2308 117 819 361 1699 5084 17127

200910 2205 127 748 365 1403 4712 15896

Market Index

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200911 2384 129 797 377 1562 5033 16926

200912 2605 125 872 408 1560 5201 17465

201001 2477 125 871 388 1390 4882 16358

201002 2602 116 923 406 1464 4922 16430

201003 2615 132 950 424 1416 5249 17528

201004 2736 133 906 404 1280 5278 17559

201005 2658 142 817 401 1237 5086 16945

201006 2789 153 875 385 1424 5313 17701

201007 2789 154 831 411 1198 5368 17868

201008 2707 163 872 400 1256 5402 17971

201009 3041 178 991 448 1441 6030 20069

201010 2970 171 984 420 1551 6018 20032

201011 3049 172 987 420 1424 5863 19521

201012 3445 175 1076 490 1421 6135 20509

201101 3116 163 988 438 1253 5506 18328

201102 3003 169 971 438 1207 5333 17823

201103 3237 182 1075 478 1264 5834 19445

201104 2906 192 1108 450 1320 5750 19136

201105 2792 193 1027 447 1228 5560 18503

201106 2907 203 949 418 1158 5647 18846

201107 2767 208 1012 390 1208 5482 18197

201108 2753 205 1006 383 1212 5457 18110

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MARUTHI

Close NIFTY Sensex

Market Index

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Equity Beta and Debt/equity ratios for companies of an industry

Company Beta Mcap Debt/(Debt+equity)

1 1.19 610 4.30%

2 1.12 347 11.70%

3 1.17 71 25.30%

4 1.20 511 4.90%

5 1.21 82 8.50%

Weighted beta

Weighted Debt/equity

Industry beta

Determine the equity beta for the following Debt/Equity ratios

Company Equity/(Debt+Equity) Equity beta

1 0.10

2 0.25

3 0.50

4 0.75

5 1.00

Determining Asset Beta

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1 Financial Gearing can alter the expected rate of return for equity

2 Two companies having the same operating risk but having different

debt/equity ratios will have different equity beta

3 Equity beta changes depending on the debt/equity ratio

4 Average operating or asset beta is the weighted average of debt and equity beta

5 Asset beta reflects the fundamental operating risk

6 This is split between debt and equity holders depending on the capital structure

7 BetaAsset = [D/(D+E) x BetaDebtx(1-t)] +[E/(D+E) x B

8 BetaAsset = [E/(D+E) x BetaEquity] [Unlevered fi

If BetaAsset for an industry equals 1, what is the equity beta for a firm with 100% equity,

75% equity and 50% equity

Financial Leverage and Beta

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taEquity]

m]

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