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CMA Intermediate · Financial Management and Business Data Analytics · Sources of Finance

Meera Textiles issues 10,000 debentures of face value Rs. 1,000 each at 12% coupon, at a discount of 5%. Flotation cost is Rs. 50 per debenture. They are redeemable at par after 5 years. What is the net amount received by the company from the issue?

The net receipt is Rs. 90,00,000. Each debenture is issued at Rs. 950 after a 5% discount, and Rs. 50 flotation cost reduces this to Rs. 900. Multiplying by 10,000 debentures gives Rs. 90,00,000.

  1. ARs. 90,00,000Correct
  2. BRs. 95,00,000
  3. CRs. 94,50,000
  4. DRs. 85,00,000

Explanation

Issue price = 1,000 x 95% = Rs. 950. Net proceeds per debenture = 950 - 50 = Rs. 900. For 10,000 debentures: 900 x 10,000 = Rs. 90,00,000. Rs. 95,00,000 ignores flotation cost, which is the key error.

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