Compute the after-tax cost of capital of a company in case a perpetual bond (face value is ₹100) is…
For a perpetual bond sold and redeemable at par (Rs. 100), the before-tax cost of debt equals the coupon rate of 7%. The after-tax cost of debt (Kd) is computed as I * (1 -…
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Compute the after-tax cost of capital of a company in case a perpetual bond (face value is ₹100) is sold as well as redeemed at par having coupon rate of interest being 7% and corporate tax rate is 30%.
Answer and explanation
Correct answer B
For a perpetual bond sold and redeemable at par (Rs. 100), the before-tax cost of debt equals the coupon rate of 7%. The after-tax cost of debt (Kd) is computed as I * (1 - t) = 7% * (1 - 0.30) = 4.9%.
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UGC NET Commerce