Mallard plc issues loan capital with a nominal value of £100 million at a price of £90 per £100 nominal value. The annual interest rate is 10 per cent of the nominal capital. The loan capital will be redeemed in two years’ time at £110 per £100 nominal value. The effective rate of corporation tax for the business is 30 per cent. What is the net cost of the loan capital (to the nearest per cent) to the business?
Mallard plc issues loan capital with a nominal value of £100 million at a price of £90 per £100 nominal value. The annual interest rate is 10 per cent of the nominal capital. The loan capital will be redeemed in two years’ time at £110 per £100 nominal value. The effective rate of corporation tax for the business is 30 per cent. What is the net cost of the loan capital (to the nearest per cent) to the business?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Mallard plc issues loan capital with a nominal value of £100 million at a price of £90 per £100 nominal value. The annual interest rate is 10 per cent of the nominal capital. The loan capital will be redeemed in two years’ time at £110 per £100 nominal value. The effective rate of corporation tax for the business is 30 per cent.
What is the net cost of the loan capital (to the nearest per cent) to the business?
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