A firm has the following capital components: Equity ₹6 crore at a cost of 13% per annum, Preference shares ₹2 crore at a dividend rate of 8%, Long‑term bank loan ₹3 crore at an interest rate of 9%, and Convertible debentures ₹1.5 crore with an annual coupon of 7%. The corporate tax rate is 30%. Calculate the weighted average cost of capital (WACC) of the firm (express your answer in % to two decimal places).

Step-by-step solution

1. Sum the amounts of all capital components to obtain total capital: 6+2+3+1.5 = 12.5 crore.
2. Determine the weight of each component by dividing its amount by total capital: Equity 6/12.5 = 0.48; Preference 2/12.5 = 0.16; Long‑term loan 3/12.5 = 0.24; Convertible 1.5/12.5 = 0.12.
3. Compute the after‑tax cost of each component: Equity cost remains 13% (not tax deductible); Preference dividend 8% (not tax deductible); Long‑term loan interest 9% × (1‑0.30) = 6.3%; Convertible coupon 7% × (1‑0.30) = 4.9%.
4. Multiply each weight by its corresponding cost and sum: 0.48×13 + 0.16×8 + 0.24×6.3 + 0.12×4.9 = 9.62.
5. Thus the WACC of the firm is 9.62%.

Concept tested: WACC calculation with tax effects

Published 16 October 2026 · How this solution was prepared and checked