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Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.?
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Surya Industries Ltd. has raised funds through issue of 10,000 debentu...
Solution:
Given data:
Number of debentures issued = 10,000
Face value of debenture = Rs. 150
Discount on debenture = Rs. 10
Maturity period = 10 years
Coupon rate = 16%
Flotation cost = Rs. 5 per debenture
Redemption premium = 10%
Corporate tax rate = 40%
Calculation of Cost of Debentures:
1. Calculation of Net Proceeds:
Face value of debenture = Rs. 150
Less: Discount on debenture = Rs. 10
Net proceeds from debenture = Rs. 140
2. Calculation of Flotation Cost:
Flotation cost = Rs. 5 per debenture
Total flotation cost = 5 x 10,000 = Rs. 50,000
3. Calculation of Redemption Value:
Face value of debenture = Rs. 150
Redemption premium = 10%
Redemption value = 150 + (10% of 150) = Rs. 165
4. Calculation of Interest Payments:
Coupon rate = 16%
Annual interest payment = 16% of Rs. 150 = Rs. 24
Total interest payment over 10 years = 24 x 10 = Rs. 240
5. Calculation of Tax Shield:
Corporate tax rate = 40%
Tax shield on interest payment = 40% of Rs. 24 = Rs. 9.6
Tax shield on flotation cost = 40% of Rs. 5 = Rs. 2
6. Calculation of Cost of Debentures:
Total cost of debentures = (Net proceeds + Flotation cost - Tax shield) / (Redemption value + Face value) / 2 x 100
= (1,40,000 + 50,000 - 11,600) / (165 + 150) / 2 x 100
= 1,78,400 / 315 x 100
= 56.57%
Therefore, the cost of debentures is 56.57%.
Conclusion:
Surya Industries Ltd. has issued 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with a maturity period of 10 years and a coupon rate of 16%. The flotation cost is Rs. 5 per debenture and the debentures are redeemable with a 10% premium. The corporate tax rate is 40%. After calculating all the relevant factors, the cost of debentures is found to be 56.57%.
Given data:
Number of debentures issued = 10,000
Face value of debenture = Rs. 150
Discount on debenture = Rs. 10
Maturity period = 10 years
Coupon rate = 16%
Flotation cost = Rs. 5 per debenture
Redemption premium = 10%
Corporate tax rate = 40%
Calculation of Cost of Debentures:
1. Calculation of Net Proceeds:
Face value of debenture = Rs. 150
Less: Discount on debenture = Rs. 10
Net proceeds from debenture = Rs. 140
2. Calculation of Flotation Cost:
Flotation cost = Rs. 5 per debenture
Total flotation cost = 5 x 10,000 = Rs. 50,000
3. Calculation of Redemption Value:
Face value of debenture = Rs. 150
Redemption premium = 10%
Redemption value = 150 + (10% of 150) = Rs. 165
4. Calculation of Interest Payments:
Coupon rate = 16%
Annual interest payment = 16% of Rs. 150 = Rs. 24
Total interest payment over 10 years = 24 x 10 = Rs. 240
5. Calculation of Tax Shield:
Corporate tax rate = 40%
Tax shield on interest payment = 40% of Rs. 24 = Rs. 9.6
Tax shield on flotation cost = 40% of Rs. 5 = Rs. 2
6. Calculation of Cost of Debentures:
Total cost of debentures = (Net proceeds + Flotation cost - Tax shield) / (Redemption value + Face value) / 2 x 100
= (1,40,000 + 50,000 - 11,600) / (165 + 150) / 2 x 100
= 1,78,400 / 315 x 100
= 56.57%
Therefore, the cost of debentures is 56.57%.
Conclusion:
Surya Industries Ltd. has issued 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with a maturity period of 10 years and a coupon rate of 16%. The flotation cost is Rs. 5 per debenture and the debentures are redeemable with a 10% premium. The corporate tax rate is 40%. After calculating all the relevant factors, the cost of debentures is found to be 56.57%.
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Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.?
Question Description
Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.?.
Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.?.
Solutions for Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.? in English & in Hindi are available as part of our courses for Class 12.
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Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.?, a detailed solution for Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.? has been provided alongside types of Surya Industries Ltd. has raised funds through issue of 10,000 debentures of Rs. 150 each at a discount of Rs. 10 per debenture with 10 years maturity. The coupon rate is 16%. The flotation cost is Rs. 5 per debenture. The debentures are redeemable with a 10% premium. The corporate taxation rate is 40%. Calculate the cost of debentures.? theory, EduRev gives you an
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