When is a company eligible to issue Commercial Paper? A company issues 90 days commercial paper of the face value of ₹ 1,000 at ₹ 970. The credit rating expenses are 0.5% of the size of issue, issuing and paying agent ch

Eligibility to issue Commercial Paper: A company would be eligible to issue Commercial Paper provided: The tangible net worth of the company, as per the latest audited balance sheet, is not less than ₹ 4 Crore. The company has been sanctioned working capital limit by bank/s or FIs. The borrowal account of the company is classified as a Standard Asset by the financing bank/institution. Calculation of the cost of issuing Commercial Paper: Commercial Papers are redeemed at face value. Hence, Amount received + Interest = Face Value ₹ 970 + Interest = ₹ 1,000 Interest = ₹ 1,000 - ₹ 970 = ₹ 30 Interest rate of 90 days = (Interest / Amount received) × 100 = (30 / 970) × 100 = 3.093% Interest rate for the year = 3.093% × (365 / 90) = 12.544% Calculation of Total Cost of Funds* Particulars Percentage Interest Rate of the Year 12.544% Add: Credit Rating Expenses (0.5% × 365) / 90 2.028% Add: Issuing and pay agents charges (0.35% × 365) / 90 1.419% Add: Stamp Duty (0.25% × 365) / 90 1.014% Total Cost of Funds 17.015% i.e. 17% approx. *The figures are taken up to three digits after decimal and rounded off accordingly.