Cost of redeemable debentures and preference shares, Finance Basics

Cost of Redeemable Debentures and Preference Shares

Redeemable fixed return securities have an exact maturity period.  The cost of those securities is called redemption yield (RY) or yield to maturity (YTM).  For a redeemable debenture Kd (cost of debt) = YTM = RY, can be determined using approximation technique follows as:

Kd /VTM/RY = (Int (1-T) + (M-Vd) 1/n) / (M+Vd)1/2

Whereas: Int.  = Interest charges p.a.

               T  = Corporate tax rate

               M   = Par or maturity value of a debenture

                Vd   = Current market value of a debenture

                n  = Number of years to maturity

Posted Date: 1/30/2013 4:28:31 AM | Location : United States







Related Discussions:- Cost of redeemable debentures and preference shares, Assignment Help, Ask Question on Cost of redeemable debentures and preference shares, Get Answer, Expert's Help, Cost of redeemable debentures and preference shares Discussions

Write discussion on Cost of redeemable debentures and preference shares
Your posts are moderated
Related Questions
Importance of Working Capital Management The finance manager must understand the management of working capital since of the following purpose: a) Time devoted to working c

Profitability in relation to investment - Profitability Ratio a) Return on Investment (ROI) or return on total asset (ROTA) = (Net profit/ Total asset) x 100 The ratio i

Company XYZ stock is considering the two new projects, Project A and Project B. The two projects have similar risk characteristics as the existing business. The managers forecast t

The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.1

Ask question #MinimQuestion You are the financial accountant of Donald Bhd, a manufacturer and wholesaler of soft drinks. Donald Bhd is in direct competition with Fizz Bhd and Po

The information in the table below is available for a large fund-raising project. a. Determine the critical path and the expected completion time of the project. b. Plot the

Why do some investors prefer high-dividends paying stocks? Why ,ight other investors prefer low-dividend paying stocks?

A current radio advertisement states that the average American household has an average credit card debt of $25,000. Based on an APR (Annual Percentage Rate) of 18% (common for cre

Overlaps and Conflicts Overlaps - whenever attaining ONE MEANS achieving the another Conflicts - whenever attaining ONE CANNOT permit the achievement of another.

After carefully reading all the available information, prepare a two page (double-spaced) essay and answer the following questions: Assume that we have the following data: C=100+0.