in cost of capital we have redemption value and net proceeds while calculating cost of debt
how shud we treat market value of debentures?????
now in this question
a co issued 10000 10% deb of rs 100 each on 1.4.2006 to be matured on 1.4.2011 . if the markey price of the debentues is rs 80 compute the cost of debt assuming tax rate 35%
in solution they have taken redemtion value 100(which they have assumed becoz nothing is given ) bt why they have taken net proceeds as 80?????
brother net proceeds is the amt that company gets when issuing the deb ..
so np = issue price - issuing expense
so ismein market value ka kya role..market value is d value that d compnay will get when it sells d deb ..bt abhi to yeh co..issue kar rhi hain....
hai ther
i came across a question wer ther was market price given in the question but NP was taken as the Par value of the debenture
" Rs 100 per debenture redeemable at par has 2% floatation cost and 10 years of maturity .
The market Price per debenture is Rs 105." ( 9% Debentures,corporate tax- 35%)
cost of Debentures = 9(1-0.35)+(100-(*100-2))
10 yrs
(100+98)/2
why did they take NP = 100? . its Practise manual question
CAclubindia
