Sign up now
to enroll in courses, follow best educators, interact with the community and track your progress.
Download
Cost of Long Term Debt - Determination (in Hindi)
4,255 plays

More
This video covers Cost of Long term Debt - Determination.

Heena Malhotra
Believe in Conceptual Learning.

Unacademy user
mam please suggest something regarding in last moment revision!!
mam tumhari video se es bar me net jrf clear karunga in 2019 june net jrf
mam..thanks you so much for providing valuable videos on FM. i m facing difficulty in downloading the same in pdf format. can you please suggest the way to download the same.
Heena Malhotra
7 months ago
You will get download PDF on each video ( above at right corner)
and then again devide mai mv+np/2 but apkaa tohh different haii
jo redeemable ka formula hauu meraa valaa vo cd=i+mv-np/n×100
i want to download the all lessons in pdf format..
  1. Cost of Capital By Heena Malhotra


  2. Cost of Capital Cost of RetainedCost and Weight Earning Cost of Combination of Cost of Equity Cost of Debt Preference Share of each sources of Capital Weighted Average Cost of Capital (WACC) By Heena Malhotra


  3. COST OF LONG TERM DEBT By Heena Malhotra


  4. Features of Debentures or bonds (i) Face Value: Debentures or Bonds are denominated with some value; this denominated value is called face value of the debenture. Interest is calculated on the face value of the debentures. Eg. If a company issue 9% Non-convertible debentures of 100 each, this means the face value is 100 and the interest @ 9% will be calculated on this face value. (ii) Interest (Coupon) Rate: Each debenture bears a fixed interest (coupon) rate (except Zero coupon bond and Deep discount bond). Interest (coupon) rate is applied to face value of debenture to calculate interest, which is payable to the holders of debentures periodically. (ii) Maturity period: Debentures or Bonds has a fixed maturity period for redemption. However, in case of irredeemable debentures maturity period is not defined and it is taken as infinite. (iv) Redemption Value: Redeemable debentures or bonds are redeemed on its specified maturity date. Based on the debt covenants the redemption value is determined. Redemption value may vary from the face value of the debenture By Heena Malhotra


  5. Features of Debentures or bonds (v) Benefit of tax shield: The payment of interest to the debenture holders are allowed as expenses for the purpose of corporate tax determination. Hence, interest paid to the debenture holders save the tax liability of the company. Saving in the tax liability is also known as tax shield.The example given below will show you how interest paid by a company reduces the tax liability Example: There are two companies namely X Ltd. and Y Ltd. The capital of the X Ltd is fully financed by the shareholders whereas Y Ltd uses debt fund as well. The below is the profitability statement of both the companies: By Heena Malhotra


  6. X Ltd. Y Ltd in lakh)in lakh) Earnings before interest and taxes (EBIT) Interest paid to debenture holders Profit before tax (PBT) Tax @ 35% Profit after tax (PAT) A comparison of the two companies shows that an interest payment of 40 by the Y Ltd. results in a tax shield (tax saving) of 4 lakh ( 40 lakh paid as interest x 35% tax rate). Therefore the effective interest is 26 lakh only. 100 (40) 60 (21) 39 100 100 (35) 65 By Heena Malhotra


  7. Cost of Irredeemable Debt Cost of long term Debt Cost of Redeemable Debt By Heena Malhotra


  8. Cost of Irredeemable Debentures The cost of debentures which are not redeemed by the issuer of the debenture is known as irredeemable debentures. Cost of debentures not redeemable during the life time of the company is calculated as below: Cost of Irredeemable Debenture (K1-t NP Where, KCost of debt after tax Annual interest payment NP Net proceeds of debentures or current market price tTax rate By Heena Malhotra


  9. o Sona Limited issued 12 % irredeemable debentures at Rs. 100, at Rs. 6 discount to their par value of Rs. 100. If the company pays corporate tax at a rate of 35 %what is its current cost of debenture capital? Cost of irredeemable debenture: NP 12 d 94 K,-_-(1-0.35)-0.08297 or 8.30% By Heena Malhotra


  10. Cost of Redeemable Debentures (1-t).(RV-NP) RV NF) Cost of Redeemable Debenture (K) 2 Where, IInterest payment NPNet proceeds from debentures in case of new issue of deb or Current market price in case of existing debt. RV Redemption value of debentures t Tax rate applicable to the company n Life of debentures By Heena Malhotra


  11. A company issued 10,000, 10% debentures of 100 each on 1.4.2017 to be matured on 1.4.2022. The company wants to know the current cost of its existing debt and the market price of the debentures is 80, Compute the cost of existing debentures assuming 35% tax rate. (RV-NP) Cost of debenture (Kd) = (RV+NP) 2 NP RV = Interest on debenture = 10% of 100 - Current market price -Redemption value = 10 80 Period of debenture -5 years = Tax rate 35% or 0.35 R 10 (1-0.35100- 80) (100+ 80) 2 5years di 10 0.65+ 4 10.5 90 Or, -0.1 1 66 or 1 1 .67% R90