Cost of debt (Borrowing capital); explain phases of debenture issuing cost
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What is the Cost of Borrowing Capital? Explain the different phases of Debenture issuing cost for the folliwng examples?
1) A company wishes to issue 1000, 7% debentures of $100 each for which the company had to pay the following expenses:
(i) under writing commission 1.5%
(ii) Brokerage .50%
(iii) Printing & other expenses $1000.
2) 7% debentures, issued at $94 after 12 years, repayment and other expenses
and details as listed above in example 1.
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The solution works through all the calculations for the problems including explanations to support the answers.
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Cost of Borrowing Capital: The cost of borrowing capital is known as Debenture Issuing Cost. Debenture issue price will always be lesser than that of its realized price as all brokerage, commission and discount are deducted from issue price.
Solution for example 1) (phase 1)
Face Value $100
Less expenses:
under writing commission : 1.5
...
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