The question is: 8%loan stock 2009 is $400. Loan stock interest is paid annually in arrears and is allowable for tax at corporation tax rate of 30%.(tax payable in the same year) The loan stock was priced at $98.62 ex-interest per $100 nominal on 30 june 2008. Loan stock is redeemable at par on 30 June 2009.
Ans: cost of debt= 32x(1-0.3)+400/(1+kd)=400×0.9862 simplifying:- (1+kd)=22.4+400/(0.9862×400 kd=7.08%
(does any one know what formula is this???????????? pls explain…..)