Calculation of Cost of Capital

Step 1: Calculation of net amount received
- Total amount raised through the issue of debentures = Rs. 10,00,000
- Less: Commission paid to brokers @ 2% = Rs. 20,000
- Net amount received = Rs. 9,80,000

Step 2: Calculation of Interest on Debentures
- Rate of interest on debentures = 10%
- Total interest payable annually = Rs. 1,00,000 (10% of Rs. 10,00,000)
- Interest payable after tax = Rs. 70,000 (30% of Rs. 1,00,000)
- Interest payable for 10 years = Rs. 7,00,000

Step 3: Calculation of Redemption Amount
- Face value of debentures = Rs. 10,00,000
- Amount to be redeemed = Face value of debentures

Step 4: Calculation of Cost of Capital
- Cost of Capital = (Interest payable + Redemption Amount - Net amount received) / Net amount received x 100
- Cost of Capital = (Rs. 7,00,000 + Rs. 10,00,000 - Rs. 9,80,000) / Rs. 9,80,000 x 100
- Cost of Capital = 28.86%

Explanation
The cost of capital is the rate of return that a company must earn on its investments to maintain its market value and attract funds from investors. In this case, Y Ltd has issued 10% debentures of Rs. 10,00,000 and realized Rs. 9,80,000 after paying 2% commission to brokers. The debentures are redeemable at the end of the 10th year.

To calculate the cost of capital, we first need to calculate the net amount received by the company, which is the total amount raised through the issue of debentures less the commission paid to brokers. In this case, the net amount received is Rs. 9,80,000.

Next, we need to calculate the interest payable on the debentures. The rate of interest on the debentures is 10%, which means that the company must pay Rs. 1,00,000 annually as interest. However, the company is subject to a tax rate of 30%, which means that the interest payable after tax is Rs. 70,000. The interest payable for 10 years is Rs. 7,00,000.

The redemption amount is the face value of the debentures, which is Rs. 10,00,000.

Finally, we calculate the cost of capital by using the formula (Interest payable + Redemption Amount - Net amount received) / Net amount received x 100. In this case, the cost of capital is 28.86%. This means that the company must earn a rate of return of at least 28.86% on its investments to maintain its market value and attract funds from investors.