# Stock Market and Cost

**Topics:**Stock market, Stock, Weighted average cost of capital

**Pages:**4 (1084 words)

**Published:**February 28, 2011

IV BBA B

ASSIGNMENT

DATE OF SUBMISSION: 25.02.2011- FRIDAY

1.a) X Ltd. issues Rs.50,000 8% debentures at par. The tax rate applicable to the company is 50%. Compute the cost of debt capital. b) Y Ltd. issues Rs.50,000 8% debentures at a premium of 10%. The tax rate applicable to the company is 60%. Compute cost of debt capital. c) A Ltd. issues Rs.50,000 8% debentures at a discount of 5%. The tax rate is 50%, Compute the cost of debt capital. d) B Ltd. issues Rs.1,00,000 9% debentures at a premium of 10%. The costs of floatation are 2%. The tax rate applicable is 60%. Compute cost of debt-capital. -D

2. A company issues Rs.10,00,000 10% redeemable debentures at a discount of 5%. The costs of floatation amount to Rs.30,000. The debentures are redeemable after 5 years. Calculate before-tax and after-tax cost of the debt assuming a tax rate of 50%. -C

3. A five-year Rs.100 debenture of a firm can be sold for a net price of Rs.96.50. The coupon rate of interest is 14% p.a., and the debenture will be redeemed at 5% premium on maturity. The firm’s tax rate is 40%. Compute the after tax cost of debenture. - C

4. Assuming that a firm pays tax at 50% rate, compute the after tax cost of debt capital in the following cases: 1) A perpetual bond sold at par, coupon rate of interest being 7%. 2) A 10 year, 8% Rs.1,000 per bond sold at Rs.950 less 4% underwriting commission. -C

5. a. X ltd issues 10000 15% debentures of Rs 100 each at a discount of 5%. Compute the cost of debt.

b. X Ltd. issues 50,000 8% debentures of Rs.10 each at a premium of 10%. The costs of floatation are 2%. The rate of tax applicable to the company is 60%. Compute the cost of debt capital.C

6. ABC Ltd. raised a debt of Rs.50 lakhs on the terms that interest shall be payable at the prime lending rate of...

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