Professional Documents
Culture Documents
Before tax :-
Kdb = Int +1/n( RV – NP ) *100
½(RV+ NP)
After tax :-
Kda = kdb X (1-t)
Example of
Redeemable debt
A company issues Rs 5,00,000 , 10%
redeemable debentures redeemable at
par after 5 years .The cost of Floatation
amount to 4% of face value. Tax rate is
35%
You are required to calculate before tax
and after tax cost of debt if debentures
are issued at par,at a discount of 10%,
at a premium of 5%
Example
Formula:-
Ke = EPS/ MP * 100
Example:- A company plans to incur an
expenditure of Rs 80 lakhs for expanding its
operations. The relevant operation is as
follows:-
No of existing share = 20 lakhs
Net earning = Rs 160 lakhs
Market value of existing share = 40 s
Compute the cost of equity capital.
Earning yield plus growth
in Earning Method
Formula:-
Ke= EPS/ MP *100 + G