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Sir,
In a lease Vs buy question it was said that the before tax kd is 8.6%
And they used after tax 6%Is it assumed that the lease payments would be done by debt finance??
And when would before tax kd relevant?
Or should I always take after tax unless told otherwiseThe cost to the company is always after tax.
The before tax cost is only relevant when calculating the MV of debt (because the MV is determined by investors and they are not affected by company tax).
Sorry sir ,
But can you let me know for discounting purposes (like in NPV or lease scenario)
Is after tax kd prioritised over before tax..
(Assuming WAAC isn’t given)It is not a question of prioritising – when a decision is being made by the company (whether it is a lease or buy decision or whatever) then it is always the after tax cost of debt.
The pre-tax return on debt is only relevant when calculating the market value of debt.
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