Good morning Sir, I am wondering why you used 5% and not 6% interest given for the loan notes in the PV table for both annuity and PV ..thanks in advance

The coupon rate is 6% and I have used 6% (less tax) to get the interest flows.

The cost of redeemable debt is always the IRR of the flows. As always for the IRR we need two ‘guesses’ and I have used 5% and 10%. However, again as always with the IRR, any two ‘guesses’ will do.

I really do suggest that you watch my free lectures on the cost of capital. Calculating the cost of redeemable debt is always in the exam!!!

adaacca says

Sir! where is 4 coming from? 4*23000*4.26. Thanks

John Moffat says

The shares have a nominal value of $0.25 so the number of shares is 23,000 / 0.25 (which is the same as 4 x 23,000).

glodan123 says

Good morning Sir,

I am wondering why you used 5% and not 6% interest given for the loan notes in the PV table for both annuity and PV ..thanks in advance

John Moffat says

The coupon rate is 6% and I have used 6% (less tax) to get the interest flows.

The cost of redeemable debt is always the IRR of the flows. As always for the IRR we need two ‘guesses’ and I have used 5% and 10%. However, again as always with the IRR, any two ‘guesses’ will do.

I really do suggest that you watch my free lectures on the cost of capital. Calculating the cost of redeemable debt is always in the exam!!!

glodan123 says

thanks a lot sir.

John Moffat says

You are welcome 馃檪