NEMA Industries Inc. has issued a 4-year maturity, 16% coupon bonds with a total nominal value of 600,000₺. The bonds were sold at a 12% discount and floatation costs amounted to 5% of the total nominal value. The principal will be repaid in equal installments after the first year in which there will be no payment. The corporate income tax rate is 22%. Compute the cost of this bond. Try 20% first.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
NEMA Industries Inc. has issued a 4-year maturity, 16% coupon bonds with a total nominal value
of 600,000₺. The bonds were sold at a 12% discount and floatation costs amounted to 5% of the total nominal value.
The principal will be repaid in equal installments after the first year in which there will be no payment. The corporate
income tax rate is 22%. Compute the cost of this bond. Try 20% first.
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