ACCA F9 The cost of Capital – Cost of debt

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1. hashirhashmat says

   May 4, 2021 at 8:10 am

   Hi Sir,

   Sorry to bother you and I really appreciate your help.

   I have quick question from ( Gemlo Co -Dec 2015): why and how interest rate is different than cost of debt, as in the question it says 6% irredeemable debt (in the balance sheet) and then in the notes it says cost of cost of irredeemable debt is 7%.

   in the same way: in balance sheet: 7% loan notes and then in the notes it says loan notes have a cost of debt 6%.

   Can you clarify please, the difference in the interest rate given in the balance sheet and cost of debt in the notes and why they are different?

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   • John Moffat says

     May 4, 2021 at 9:06 am

     The 6% stated on the balance sheet is the interest rate on nominal value (the coupon rate). The cost of debt to the company is the after tax interest on the market value, for all the reasons that I explain in my lectures.

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