ABC Ltd. wishes to issue 1000 7% debentures of $100 each for which the expenses of issue would be $5 per debenture .Find out the cost of debenture capital.

Asked on

1 Answer | Add Yours

ramakrishnan's profile pic

Posted on

Computation of cost of debenture capital.

Issue Proceeds from 1000 7% debentures of $100           $100,000

Less : Cost of issue of debentures @ $5 per debenture    $    5,000

Net Proceeds from 1000 7% debentures of $100             $   95,000

Interest Cost @7%                                                      $    7,000

Total Cost of Debenture Capital  ($5,000 + $ 7,000)       $   12,000

Cost of Debenture Capital (%)   =    ($12,000/ $95,000) x 100 = 12.6316%                      

We’ve answered 302,007 questions. We can answer yours, too.

Ask a question