Answered: Compute the cost of debt capital.

Business

Accounting

Compute the cost of debt capital.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Rama company issues 120,000 10% debentures of Rs. 10 each at a premium of 10%. The costs of floatation are 4%. The rate of tax applicable to the company is 55%. Compute the cost of debt capital.

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Buchanan Corporation is refunding $11 million worth of 11% debt. The new bonds will be issued for 8%. The corporation's tax rate is 40%. The call premium is 10%. What is the net cost of the call premium after taxes? Multiple Choice $664, 500 $660, 000 $695,000 $675,000
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