Assuming a firm pays tax at 50% rate, compute the after tax cost of debt capital in the following cases:

a) A perpetual bond sold at par, coupon rate of interest being 7%.

b) A 10 year, 8% Rs.1,000 per bond sold at Rs.950 less 4% underwriting commission.

Answer rating: 100% (QA)

a For a perpetual bond sold at par with a coupon rate of 7 the aftertax cost of debt capital can be ... View the full answer