Mini has redeemable 10% debenture, redeemable on 31 Dec 2006 with a current mark
ID: 2809114 • Letter: M
Question
Mini has redeemable 10% debenture, redeemable on 31 Dec 2006 with a current market price on 31 December 2003 of R95.57 per R100 value. The company tax rate is 28%A) Find the cost of the debenture ( if possible please do a step by step process on finding the discount rate I'm battling with that) B) calculate the tax relief C) calculate the after tax cost of the debenture Mini has redeemable 10% debenture, redeemable on 31 Dec 2006 with a current market price on 31 December 2003 of R95.57 per R100 value. The company tax rate is 28%
A) Find the cost of the debenture ( if possible please do a step by step process on finding the discount rate I'm battling with that) B) calculate the tax relief C) calculate the after tax cost of the debenture
A) Find the cost of the debenture ( if possible please do a step by step process on finding the discount rate I'm battling with that) B) calculate the tax relief C) calculate the after tax cost of the debenture
Explanation / Answer
a) Calculation of cost of debenture: Interest 10 Face value(assumed) $100 Debenture price $95.57 Years to maturity 3 Yield= Interest+ (Face value-debenture price)/years to maturity (face value + debenture price)/2 10+(100-95.57)/3 (100+95.57)/2 11.74% Cost of debenture is 11.74% b) Tax relief= 11.74*0.28= 3.29 (c) After tax cost of debenture= 11.74-3.29= 8.58% After tax cost of debenture is 8.58%