Question

XYZ limited issues ₹1,00,000 , 9% debentures at a premium at 10%. The cost of flotation is 2%. The tax rate applicable is 60%. Compute the Kd​

Answer 1

Kd​ = 3.34%

solution

Net proceeds = 1,00,000 + 10,000 -(2÷100 ×1,10,000)

= 1,10,000 - 2200 =1,07,800

`Net proceeds = 1,00,000 + 10,000 -(2÷100 ×1,10,000) = 1,10,000 - 2200 =1,07,800`

Kd = 1/NP (1-t)

= 9000÷1,07,800×(0.4) = 3.34%

`Kd = 1/NP (1-t) = 9000÷1,07,800×(0.4) = 3.34%`