Question

A firm issues debentures of Rs. 1,00,000 and

realizes Rs. 98,000 after allowing 2%

commission to brokers. Debentures carry

interest rate of 10%. The debentures are due

for maturity at the end of 10th year at par.

Calculate cost of debt. in ans​

Answer 1

Answer:

10.30 per

Explanation:

A firm issues debenture of Rs 1,00,000 but is able to realize only 98,000 due to 2% commission to the broker. The debentures carry an interest rate of 10%The debentures are due for maturity after 10 years. Calculate the cost of capitalkd = IX(1-t) + (P-Net Proceeds)/n(P + Net Proceeds)/2 I = 10,000, P= 1,00,000, NP =98000, n= 10 Calculate after tax cost of capital if the firm is in the tax bracket of 55% Kd = 10.30%