Mallard plc issues loan capital with a nominal value of £100 million at a price of £90 per £100 nominal value. The annual interest rate is 10 per cent of the nominal capital. The loan capital will be redeemed in two years’ time at £110 per £100 nominal value. The effective rate of corporation tax for the business is 30 per cent. What is the net cost of the loan capital (to the nearest per cent) to the business?

Mallard plc issues loan capital with a nominal value of £100 million at a price of £90 per £100 nominal value. The annual interest rate is 10 per cent of the nominal capital. The loan capital will be redeemed in two years’ time at £110 per £100 nominal value. The effective rate of corporation tax for the business is 30 per cent. What is the net cost of the loan capital (to the nearest per cent) to the business?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 24P

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