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Sir, in question 2 of Dec 2007, while calculating the cost of debt, the answer has not reduced the amount by the tax savings. Why is that so?
Thanks
Strictly the examiner was wrong to call it the cost of debt where he does, because it is pre-tax.
However in the calculation of the WACC, he multiplies by 0.7 to account for the tax, and therefore his answer is correct.
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