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Nisha Sharma posted an Question
October 18, 2021 • 23:05 pm 30 points
  • UGC NET
  • Commerce

(1-t) r-(mv-np x 100 k (after tax)= or mv+nnp cost of irredeemable or perpetual debt r k (after tax)= ; 1-t) np where k, = cost of debt r interest np net procee

(1-T) R-(MV-NP x 100 K (after tax)= or MV+NNP Cost of Irredeemable or Perpetual Debt R K (after tax)= ; 1-T) NP where K, = Cost of Debt R Interest NP Net Proceeds T Tax Rate For Example A company issues 12% debentures of Rs. 5,00,000 repayable after 10 years at a discount of 4% and incurs RRs. 10,000 for underwriting, brokerage etc., then, the cost of debt capital will be 0 o00+ Rs. 5,00, 000- Rs. 4,70,000 000 100.

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  • Priya sarda

    The measurement of the cost of perpetual debt is conceptually relative easy. It is the rate of return which the lenders expect. The debt carries a certain rate of inter The coupon interest rate or the market yield on debt can be said to represent an approximation the cost of debt. After tax cost of perpetual debt can be calculated by adjusting the corporate tax with the before tax cost of capital. The debt may be issued at par, at discount or at premium. The cost of debt is the yield on debt adjusted by tax rate. t = Tax rate. Redeemable debts are those which will be repaid to the suppliers of debt after a specific period, while irredeemable or perpetual debt is not repaid back to the suppliers of debt—only interest on this is paid regularly.

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