Q19 (Luke Co) – Specimen examForums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Q19 (Luke Co) – Specimen examThis topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.Viewing 2 posts - 1 through 2 (of 2 total)AuthorPosts September 2, 2014 at 9:44 pm #193393 vera_ardeParticipantTopics: 1Replies: 0☆Dear John,Can you please explain me why was used the before-tax cost of debt of 10% instead of the after-tax cost of debt of 7% when calculating the market value of the loan note?Thank you, September 3, 2014 at 8:31 am #193427 John MoffatKeymasterTopics: 56Replies: 53718☆☆☆☆☆It is investors who determine the market value of debt, and investors receive the full 10% (we always ignore personal tax in F9).The company has to pay 10% to the investors but gets tax relief on the interest which is why the cost to the company is only 7%.(I really do suggest that you watch the free lectures on the Valuation of Securities where this is made very clear.)AuthorPostsViewing 2 posts - 1 through 2 (of 2 total)You must be logged in to reply to this topic.Log In Username: Password: Keep me signed in Log In