Calculate the cost of debt if the company issues Rs.10000, 8% debentures at a premium of 10%.Options :8%7.27%9%7.8%
Question
Calculate the cost of debt if the company issues Rs. 10000, 8% debentures at a premium of 10%.
Options :
- 8%
- 7.27%
- 9%
- 7.8%
Solution
The cost of debt can be calculated using the formula:
Cost of Debt = (Interest Expense / Net Proceeds) * 100%
Here, the interest expense is 8% of Rs. 10,000, which is Rs. 800.
The net proceeds are the amount the company receives from issuing the debentures. Since the debentures are issued at a premium of 10%, the company receives Rs. 10,000 + 10% of Rs. 10,000 = Rs. 11,000.
So, the cost of debt = (800 / 11,000) * 100% = 7.27%
Therefore, the cost of debt is 7.27%.
Similar Questions
A company issues 10 % debenture at face value of Rs 100, which will be redeemed at Rs 110 after 10 years .Calculate cost of capital.Options :7.27%8%10.47%7.8%
If the company has sales of Rs. 82.5 Lacs, variable cost Rs. 46.2 Lac, fixed cost Rs 6.6 lac. Find financial leverage of firmOptions :3.766.781.182.76
What is the company cost of capital for a firm financed with 30% debt if the debt requires a 10% return and equity requires a 16% return?
A company has to redeem debentures of ` 10,00,000 at the end of 3 years from now. How much money should the company accumulate every year at 10% interest rate?
If Pre tax cost of Debt is 15% and tax rate is 30%. Then what will be post tax cost of debt ?Answer area12%4.5%10.5%7.5%
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.