Question

Match the items of the following two lists and suggest the correct code:

List-I	List-II
(a) Realised yield method	(i) Cost of equity share capital
(b) Taxation	(ii) Cost of equity capital
(c) Cost of total capital employed	(iii) Cost of debt capital
(d) Dividend growth is a consideration	(iv) Weighted cost of capital

• A. $\left(a\right)-\left(iv\right),\left(b\right)-\left(ii\right),\left(c\right)-\left(ii\right),\left(d\right)-\left(i\right)$
• B. $\left(a\right)-\left(iii\right),\left(b\right)-\left(iv\right),\left(c\right)-\left(iii\right),\left(d\right)-\left(ii\right)$
• C. $\left(a\right)-\left(ii\right),\left(b\right)-\left(i\right),\left(c\right)-\left(iv\right),\left(d\right)-\left(iii\right)$
• D. $\left(a\right)-\left(i\right),\left(b\right)-\left(iii\right),\left(c\right)-\left(i\right),\left(d\right)-\left(iv\right)$

Answer 1

Answer: (C)

$\left(a\right)-\left(ii\right),\left(b\right)-\left(i\right),\left(c\right)-\left(iv\right),\left(d\right)-\left(iii\right)$

• Realised Yield Approach - Cost of equity capital is computed on the basis of dividends and the actual capital appreciation in the value of equity shares which are held by them.
• There is a 15% tax on short-term capital gains that fall under Section 111A of the Income Tax Act. This includes equity shares, equity-oriented mutual-funds, and units of business trust.
• The WACC formula is calculated by dividing the market value of the firm's equity by the total market value of the company's equity and debt, multiplied by the cost of equity, multiplied by the market value of the company's debt by the total market value of the company's equity and debt, multiplied by the cost of debt.