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A company issued 12% irredeemable debentures with current market price ₹94 and tax rate 35%. The current cost of debt is approximately:
A7.5%
B8.3%
C12.0%
D7.8%
Answer & Solution
Correct answer: B. 8.3%
1. I = ₹12 (12% of ₹100 face).
2. Kd = (12 / 94) × (1 − 0.35) = 0.1277 × 0.65.
3. Result ≈ 8.30%.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §5.2 Illustration 1_
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