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(Cost of Redeemable preference share capital) . A Ltd. Issued 40,000,8% preference share of 500 each at a premium of 6%. These preference shares are Redeemable after 8 years at a premium of 10 %. The cost of issue is ₹ 1,00000.calculate Cost of preference share capital before tax , if income tax is 25 % .?
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(Cost of Redeemable preference share capital) . A Ltd. Issued 40,000,8...
Calculation of Cost of Redeemable Preference Share Capital

Step 1: Calculation of Total Amount Raised
Total number of preference shares = 40,000
Face value of preference share = Rs. 500
Total face value of preference shares = 40,000 x 500 = Rs. 2,00,00,000
Premium on preference shares = 6%
Premium amount = 6% of 2,00,00,000 = Rs. 12,00,000
Total amount raised = 2,00,00,000 + 12,00,000 = Rs. 2,12,00,000

Step 2: Calculation of Cost of Preference Share Capital
Redemption premium = 10%
Redemption premium amount = 10% of 2,00,00,000 = Rs. 20,00,000
Total amount to be paid at the time of redemption = 2,00,00,000 + 20,00,000 = Rs. 2,20,00,000
Cost of preference share capital before tax = (Total amount of dividends + Redemption premium amount - Cost of issue) / (Total amount raised - Premium amount)
Total amount of dividends = 8% of 500 x 40,000 x 8 = Rs. 12,80,000
Cost of issue = Rs. 1,00,000
Cost of preference share capital before tax = (12,80,000 + 20,00,000 - 1,00,000) / (2,12,00,000 - 12,00,000) = 0.072 or 7.2%

Step 3: Calculation of Cost of Preference Share Capital after Tax
Income tax rate = 25%
Cost of preference share capital after tax = Cost of preference share capital before tax x (1 - Income tax rate)
Cost of preference share capital after tax = 7.2% x (1 - 0.25) = 5.4%

Conclusion
The cost of redeemable preference share capital before tax is 7.2% and after tax is 5.4%.
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(Cost of Redeemable preference share capital) . A Ltd. Issued 40,000,8% preference share of 500 each at a premium of 6%. These preference shares are Redeemable after 8 years at a premium of 10 %. The cost of issue is ₹ 1,00000.calculate Cost of preference share capital before tax , if income tax is 25 % .?
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(Cost of Redeemable preference share capital) . A Ltd. Issued 40,000,8% preference share of 500 each at a premium of 6%. These preference shares are Redeemable after 8 years at a premium of 10 %. The cost of issue is ₹ 1,00000.calculate Cost of preference share capital before tax , if income tax is 25 % .? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about (Cost of Redeemable preference share capital) . A Ltd. Issued 40,000,8% preference share of 500 each at a premium of 6%. These preference shares are Redeemable after 8 years at a premium of 10 %. The cost of issue is ₹ 1,00000.calculate Cost of preference share capital before tax , if income tax is 25 % .? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for (Cost of Redeemable preference share capital) . A Ltd. Issued 40,000,8% preference share of 500 each at a premium of 6%. These preference shares are Redeemable after 8 years at a premium of 10 %. The cost of issue is ₹ 1,00000.calculate Cost of preference share capital before tax , if income tax is 25 % .?.
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