Financial ManagementMCQQuestion 13426 of 300

A company issues 12% irredeemable debentures of face value ₹100 each at par. The corporate tax rate is 30%. What is the after-tax cost of debt ( $\displaystyle K_d$ )?

Select Your Answer (Keyboard: A, B, C, D)

For any discrepancies in this question, email contact@cadada.in

Correct Answer

✅ Option C — 8.40%

All Options:

A10.00%
B11.40%
C8.40% ✓
D7.20%

Detailed Solution & Explanation

Correct Answer: Option **C** (8.40%) **Financial Management Derivation (Cost of Capital - Cost of Debt (Kd)):**

K_d = I(1 - t) = 12\%

Hence, Option C is the correct answer.

Key Concepts to Understand

Debentures

Long-term debt instruments issued by a company to the public for raising loan capital, carrying a fixed rate of interest (coupon rate) payable regardless of profit. Debenture holders are creditors, not owners, of the company.

Ready to Master Financial Management?

Practice all 300 questions with instant feedback, earn XP, track your streaks, and ace your CA Intermediate exam.

Start Practicing — It's Free

A company issues 12% irredeemable debentures of face value ₹100 each at par. The corporate tax rate is 30%. What is the after-tax cost of debt (Kd\displaystyle K_dKd​)?