Question: A . Abacus Limited issued 15 year, 14 per cent bonds five years ago. The bond which has a face value of `100 is currently

A . Abacus Limited issued 15 year, 14 per cent bonds five years ago. The bond which has a face value of `100 is currently selling for Rs.108.

(a) What is the pre-tax cost of debt?

(b) What is the after-tax cost of debt? (Assume a 35 per cent tax rate.)

B. Omega Enterprises issued 10 year, 9 per cent preference shares four years ago. The preference

share which has a face value of Rs.100 is currently selling for Rs.92. What is the cost of

preference shares?

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