Financial Management

Five years ago, sona Limited issued 12 % irredeemable debentures at Rs. 103, at Rs. 3 premium to their par value of Rs. 100. The current market price of these debentures is Rs. 94. If the company pays corporate tax at a rate of 35 %, calculate its current cost of debenture capital ?

• 7.57 %

• 8.30 %

• 12 %

• None of these

A company issued 10,000, 10% Debentures of Rs. 100 each on 1.4.2020 to be matured on 1.4.2025. The company wants to know the current cost of its existing debt and the market price of the debenture is Rs. 80. Compute the cost of existing debenture assuming 35 % tax rate using NPV Method or IRR Method

• Around 12.21 %

• Around 14.21 %

• Around 9.21 %

• None of these

Correct cost of capital helps in the following decision making :

• Evaluation of Investment options

• Financing Decision

• Designing of optimum credit policy

• All the three

Cost of equity of a company is 20 %. Rate of floatation cost is 5 %. Rate of personal income tax is 30 %. Calculate cost of retain earning ?

• 21 %

• 26 %

• 14.7 %

• 13.3 %

Cost of capital is the maximum rate of return expected by the investors

• True

• False

Cost of capital is also called

• Cut of rate

• hurdle rate

• target rate

• output rate

• Input rate

Ke stands for

• Cost of evaluation

• Cost of estimation

• Cost of equity capital

• Cost of preference capital

• Cost of floatation of equity shares

Cost of retained earnings is

• Opportunity cost of capital

• Explicit cost

• historical cost

• Marginal cost

Although it ignores the time value of money, what is the most common method used in practice for capital budgeting?

• internal rate of return

• net present value

• payback

• accounting rate of return

If the original investment of a project is Rs. 10 lakh and annual cash inflow is Rs.2 lakh, compute the pay back period of the project?