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Q. Evaluate Cost of Irredeemable Debt subsequent to tax?

Cost of Irredeemable Debt subsequent to tax: - When a company utilizes debt as a source of finance then it saves a considerable amount in payment of tax for the reason that the amount of interest paid on the debts is a deductible expense in computation of tax. Formula for computing cost of debt after tax is:

K_da = (-1/ NP) X 100 (1-t)

K_da = Cost of debt after tax

I = Annual Interest Charges

NP = Net Proceeds from the issue of Debt

t = Rate of Tax

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M9575403

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