Question

A Ltd. issues 50,000 8% debentures at
a discount of 5%. The tax rate is 50%. The
cost of preference capital is :
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Answer 1

Answer:

Assuming that a firm pays tax at 50% rate, compute the after tax cost of debt capital in the following cases:

(i) A perpetual bond sold at par, coupon rate of interest being 7%;

(ii) A 10 year, 8% Rs. 1.000 per bond sold at Rs. 950 less 4% underwriting commission.

Solution:

Solution

iii. Cost of Debt Redeemable