Question

Assuming a firm pays tax at 50% rate, compute the after tax cost of debt capital in the following cases:
A perpetual bond sold at par, coupon rate of interest being 7%.
A 10 year, 8% Rs.1,000 per bond sold at Rs.950 less 4% underwriting commission.

Answer 1

here perpetual bond formula is same as cost of irredeemable ...in question tac is given so we need to find after tax of cost of perpetual bond.