Problem on cost of

capital
Find out the post and pre tax

V.prabhu
17PA130056
 Problem
Shey Electronic company is planning to raise 400000 By way of 14%
perpetual debt. The tax rate is 40% Determine cost of debt
(Pre-tax,post tax) if the debt raised at (a) Face value (b)10% premium
(c)10% discount
Before tax After tax
Issud at

1.face value 56,000 56000(1-0.40)

×100=14% ×100=8.4%
400000 400000

2.10% premium 56000 33600

×12.72
400000 ________×100=7.63
440000
3.10% Discount 560000 33600
________×100=15.56 ________×100=9.33
360000
360000