Page 316 - Corporate Finance PDF Final new link

NPP

316 Corporate Finance BRILLIANT’S

Illustration 4.1.8
A company has issued 7% debentures of ` 100 each at a discount of 6% repayable after
12 years. Find out the Cost of Capital.
EH$ H§$nZr Zo 12 df© Ho$ níMmV² 6% [anoE~b Ho$ {S>ñH$mC§Q> na ` 100 à{V Ho$ 7% {S>~|Ma Omar {H$¶o h¢& H¡${nQ>b
H$s H$m°ñQ> kmV H$s{OE&
Solution:
NP = 100 – 6 = ` 94

(RV  NP) (100  94)
I  7  7.5
K  NP  n RV  100  94  12  100  97  100  7.7%
d
100
2 2

Illustration 4.1.9
A 7 year ` 100 debenture of a company can be sold at ` 97.75. The coupon rate is 15% p.a. and
it will be redeemed at 5% premium on maturity. The Company’s tax rate is 50%. Compute after
tax cost of debenture.
EH$ H§$nZr Ho$ 7 df© `100 {S>~|Ma ` 97.75 na ~oMm Om gH$Vm h¡& Hy$nZ aoQ> 15% à{V df© h¡ VWm Bgo ‘oÀ¶mo[aQ>r
na 5% àr{‘¶‘ na arS>r‘ {H$¶m Om¶oJm& H§$nZr H$m Q>¡³g aoQ> 50% h¡& Q>¡³g Ho$ níMmV² {S>~|Ma H$s H$m°ñQ> H$s JUZm
H$s{OE&
Solution:


 RV NP   105 97.75 
 I 1 t     15 1 0.5    
 n   7 
K = × 100 =  100
d  RV NP  97.75 105

 
 2  2
7.5 1.035 8.535
=  100 =  100 = 8.42%
101.375 101.375
COST OF PREFERENCE SHARES / {à’$a|g eo¶g© H$s H$m°ñQ>

 Irredeemable Preference Shares / B[a©S>r‘o~b {à’$a|g eo¶g©

Illustration 4.1.10
Green fields Ltd. has issued 10,00,000 irredeemable preference shares of ` 150 each at a
coupon rate of 14% p.a. The issue expenses are ` 15 per share. Calculate the cost of preference
share capital.
J«rZ ’$sëS> {b{‘Q>oS> Zo 14% à{V df© H$s Hy$nZ aoQ> na ` 150 à{V Ho$ 10,00,000 B[a©S>r‘o~b {à’$a|g eo¶g©
Omar {H$¶o& Bí¶y E³gn|gog ` 15 à{V eo¶a h¡& {à’$a|g eo¶a H¡${nQ>b H$s bmJV H$s JUZm H$s{OE&