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Q. Determine Cost of redeemable Debt?
Cost of redeemable Debt: - Usually a company issues a debt which is redeemable subsequent to a certain period during its life-time. Such a debt is named as Redeemable Debt. Cost of redeemable debt may as well be calculated before tax and after tax:
I + 1/n (RV -NP)
Kdb = n / {1/2 x (RV +NP)} X 100
Kdb = Cost of debt before tax
I = Annual Interest Charges
NP = Net Proceeds from the issue of Debt
n = Number of years in which debt is to be redeemed
RV = Redeemable Value of Debtredeemed.
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