q determine cost of redeemable debtcost of

Question

Q. Determine Cost of redeemable Debt?

Cost of redeemable Debt: - Usually a company issues a debt which is redeemable subsequent to a certain period during its life-time. Such a debt is named as Redeemable Debt. Cost of redeemable debt may as well be calculated before tax and after tax:

• Cost of Redeemable Debt prior to tax :-

                                  I + 1/n (RV -NP)

          K_db =  n / {1/2 x (RV +NP)}  X 100

K_db = Cost of debt before tax

I = Annual Interest Charges

NP = Net Proceeds from the issue of Debt

n = Number of years in which debt is to be redeemed

RV = Redeemable Value of Debtredeemed.