Sources of Finance: Value of Debt

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  1. Avatar of johnmoffat johnmoffat says:
    June 13, 2012 at 9:36 am

    If the before-tax cost of debt is 7%, then this is the investors required return. (The IRR of the pre-tax cash flows).

    The actual cost of debt will be the IRR of the post-tax cash flows and to calculate this you would need more information (when redeemable. the coupon rate, the market value, and whether redeemable at par or at a premium).

  2. Avatar of popi295 popi295 says:
    June 13, 2012 at 9:22 am

    Please advice re below because its a little bit confusing for me.
    If i have to calculate the M.V of a redeemable bond what will be the investors req’d rate of return if the exercise tell me that the before-tax cost of debt is 7%p.a. Assume tax rate is 30%.

    Would it be 7%x(1-0.30) or 7% without taking in mind tax?

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