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If a company issues 10% debentures of ₹100 at par, tax rate 25%, the after-tax cost of debt is:
A7.5%
B10.0%
C2.5%
D12.5%
Answer & Solution
Correct answer: A. 7.5%
1. Kd (irredeemable, par) = (I / NP) × (1 − t).
2. = (10/100) × (1 − 0.25).
3. = 10% × 0.75 = 7.5%.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §5.2_
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