Problems in Cost of Capital

Problems in Cost of Capital - Cost of Debt Irredeemable...

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Problems in Cost of Capital Cost of Debt – Irredeemable 1. Julian Industries Ltd., issues 5,000, 12% debentures of Rs.100 each at par. The tax rate is 40%. Calculate the cost of debt before and after tax. 2. Juhi Co Ltd., issued 10% irredeemable debentures of Rs.1,00,000. The company is in the 30% tax bracket. Calculate the cost of debt (before and after tax), if the debentures are issued at: a) par, b) 10 % premium and c) 10 % discount. 3. Victor Co Ltd., issued Rs.2,00,000, 9% debentures at a premium of 10%. The floatation(issue expenses) were 2%. The tax rate is 40%. Compute the cost of debt before and after tax. 4. Liberty company Ltd., issues Rs.50,000, 8% debentures at a premium of 10%. The cost of issue is 2%. Income tax rate applicable is 60%. Calculate the cost of debt before and after tax. 5. Jayaram and Co issued Rs.60,000, 10% debentures at a discount of 5%. The issue expenses were Rs.2,000. Assuming a tax rate of 40%, calculate the cost of debt (before and after tax). 6. Vinoth Ltd., issues 10,000, 10% debentures of the face value of Rs.10 each at a discount of 10%. The cost of issue is 3%. The company is in the 50% tax category. Calculate the cost of debt, before and after tax.
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7. Vimal and Co issued Rs.5,00,000, 8% debentures. Tax rate applicable is 60%. Calculate the cost of debt (before and after tax) if the debt is issued at: a) par b) 10% premium c) 10 % discount 8. Lal and Co issued Rs.10,00,000, 8% debt of Rs.10 each. The tax applicable is 60%. Cost of issue is 4%. Compute the cost of debt when it is issued at par, at a premium of 5% and at a discount of 10%. Cost of Debt – Redeemable 1. ABC Ltd., issues debentures of Rs.1,00,000 and realizes Rs.98,000 after allowing 2% commission to brokers. The debentures carry an interest rate of 10%. The debentures are due for maturity at the end of the 10 th year. Calculate the cost of debt.
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