6. X Ltd. issues `50,000, 12% debentures of `100 each. The debentures are redeemable after the expiry of fixed period of 5 years. The Company is in 30% tax bracket.

Required:

(i) Calculate the cost of debt after tax, if debentures are issued at

(a) Par;

(b) 10% Discount;

(c) 10% Primium.

(ii) If brokerage is paid at 2%, what will be the cost of debentures, if issue is at par?

[Ans. (i)

(a) Kd = 8.4%,

(b) Kd = 10.95%

(c) Kd = 6.09% (ii) Kd = 8.89%]