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Exam F2 Topic 3 Question 189 Discussion

Actual exam question for CIMA's F2 exam
Question #: 189
Topic #: 3
UV has raised $100,000 through the issue of two irredeemable financial instruments:
* 6% debentures with a current market value of $101.50 per $100 nominal value; and
* 8% preference shares with a current share price of $2.20 each.
The corporate income tax rate is 20%
What is the post tax cost of debt for each of these instruments?

Suggested Answer:

by Hilma at Jan 21, 2026, 01:21 AM

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Hilma
2026-01-21 01:21:55
Irredeemable Debt= Annual Interest (after tax) / Market Value
Preference Shares= Annual Dividend / Market Value
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