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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).
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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