Question
A firm issues debentures of ₹10,00,000 at 10% coupon
rate, redeemable after 5 years at 5% premium. Flotation cost = 2%. Calculate effective cost of debt (Kd) before tax.Solution
Net proceeds = 10,00,000 – 2% = ₹9,80,000. Annual interest = ₹1,00,000. Redemption = ₹10,50,000. Kd ≈ [I + (RV – NP)/n] ÷ [(RV + NP)/2] = [1,00,000 + (10,50,000 – 9,80,000)/5] ÷ [(10,50,000 + 9,80,000)/2] = [1,00,000 + 14,000] ÷ 10,15,000 = 1,14,000/10,15,000 = 11.24%
More Financial Statement Analysis Questions
- What approximate value will come in place of the question mark (?) in the following question? (Note: You are not expected to calculate the exact value.)
18.22 × 11.99 + 154.15 = ?
(20.23% of 780.31) + ? + (29.87% of 89.87) = 283
2875.45 + ? – 2762.19 = 2145.72 – 1956.63
13.99% of 399.99 ÷ 28.17 = ? ÷ 25.15
Approximate the value of (19.98 × 5.02) ÷ 0.99
(8.013 – 25.04) = ? + 11.98% of 2399.98
(14.98% of 319.99) - 7.998 = √?
20.22 × 11.99 + 140.15 = ?
- What approximate value will come in place of the question mark (?) in the following question? (Note: You are not expected to calculate the exact value.)
