Cost of Debt – Issuing and raising debt?

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    jrow
    Participant

    hi,

    what is the difference between a company issuing debt and when it raising debt? I thought that when a company issues redeemable debt, it offers eg. a loan and recieves the interest. why would it want to do that if it need money to fund a project now, e.g investment in machinery (as in one question). Also, it is always an IRR when redeemable?


    Profile photo of Kevin Kelly
    Anonymous

    Hi Irow,

    (1) Yes, as far as F9 is concerned, you should always calculate the cost of redeemable debt AFTER TAX using IRR

    (2) Issuing debt and raising debt are the same thing … they are both debt finance or bonds or loan capital. The company then pays interest + principal etc., according to the repayment details of the bond.

    (3) When a company purchases redeemable debt (buys the bonds on the stock market) it is now the Investor and so will receive an income / interest + repayment of the debt upon maturity of the debt.

    Regards, Kevin Kelly

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