lakshay (ipcc) (581 Points)
11 March 2011in 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?????
lakshay
(ipcc)
(581 Points)
Replied 12 March 2011
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....
adarsh
(CA Aspirants)
(88 Points)
Replied 24 June 2011
Sunish
(Freelance)
(168 Points)
Replied 18 October 2013
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
