Perpetual bond of rs 1000 sold at par, coupon rate 9% tax rate 50% calculate cost of debt

To calculate the cost of debt for a perpetual bond, we use the following formula:

\[
\text{Cost of Debt (after-tax)} = \text{Coupon Rate} \times (1 - \text{Tax Rate})
\]

### Given Data:
- **Face Value of Bond (Par Value)** = ₹1,000
- **Coupon Rate** = 9%
- **Tax Rate** = 50%

### Calculation:

1. **Coupon Payment:**
   \[
   \text{Coupon Payment} = \text{Coupon Rate} \times \text{Face Value} = 9\% \times 1000 = ₹90
   \]

2. **Cost of Debt (after-tax):**
   \[
   \text{Cost of Debt (after-tax)} = 9\% \times (1 - 0.50) = 9\% \times 0.50 = 4.5\%
   \]

Thus, the cost of debt for the perpetual bond is **4.5%**.

Would you like more details or have any questions? 

Here are some related questions:
1. How does the cost of debt affect a company's capital structure?
2. What would be the impact of a change in the tax rate on the cost of debt?
3. How do perpetual bonds differ from other types of bonds?
4. What is the significance of the coupon rate in bond valuation?
5. How is the market value of a perpetual bond determined?

**Tip:** The cost of debt is crucial for determining the weighted average cost of capital (WACC), which is used to evaluate investment decisions.

Learn how to calculate the cost of debt for a perpetual bond sold at par with ₹1,000 face value and 9% coupon rate, considering a 50% tax rate. Understand the impact of taxation on bond yields. Suitable for advanced finance professionals.

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