try to solve it

anyone reply please its very urgent.

SInce there one missing figure of period for which debentures is issued, My answer will be changed when the period is given.So according to the given Ques. My Answer is

Cost of loan=9.1%

Cost of Debenture= 8.6%

So Debentures is the better option.

1.  Cost of institutional loan=100 Lakhs*9.1%=910000

2.  Cost of debentures=100 Lakhs*8.6%+100000 (Cost of issue of debenture)

860000+100000=960000

Here, the cost of issue of debenture is higher so, institutional loan should be raised.

Query-  Is it correct to consider cost of issue of debenture while calculating the total cost of debenture?  If no, please provided the reason for the same.

In my previous answer i have already considered the amount of Rs 100000. so u should not to take again.Exactly cost of issue of debdnture is the part of cost to  debentures.

why the answer is different?  Please show you calculations.

 Harish,

               When you find out the cost of debentures you already consider the effect of the cost of issue in the denominator( i.e NET PROCEEDS as it will be 100 lakhs less disc and cost of issue)..So there is no need to add back that again

but, how i mean i have just deducted the discount and net proceeds comes out is 100-2.5=97.5

I have not considered 100000 while calculating cost of debenture.

Cost of Term Loan = 9.1% (10000000*14(1-0.35)%) / 10000000

Cost Of Debentures = 8.535% (10000000*13(1-0.35)%) / 9900000

So debenture is the better option