Z Ltd. has issued 8% convertible debentures of 100 each with a remaining maturity period of five years. The current market price per debenture is…

Z Ltd. has issued 8% convertible debentures of 100 each with a remaining maturity period of five years. The current market price per debenture is 85. At the time of maturity, debenture holders have an option to either redeem it at a premium of 5% or to convert each debenture into 5 equity shares. Current market price per equity share is 16. The company has just paid dividend of 8.03 per equity share. Seven years ago, it paid dividend of 5.00 per equity share. Applicable tax rate is 30%. Compute the post-tax cost of debentures using present value method. Year 1 2 3 4 5 6 7 PVIF 0.10,t 0.909 0.826 0.751 0.683 0.621 0.564 0.513 PVIF 0.12,t 0.893 0.797 0.712 0.636 0.567 0.507 0.452