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Calculate the after-tax cost of the issue

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The Ess Kay Refrigerator Company is deciding to issue 2,000,000 of Rs 1,000, 14 per cent 7-year debentures. The debentures will have to be sold at a discount rate of 3 per cent. Further, the firm will pay an underwriting fee of 3 per cent of the face value. Assume a 35% tax rate.

Calculate the after-tax cost of the issue. What would be the after-tax cost if the debenture were sold at a premium of Rs 30?

Reference no: EM13849554

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