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    • Tax is always considered when calculating the cost of debt to the company.

      Maybe you are confusing it with the return to investors , which is calculated pre-tax because investors are not affected by company tax.

  2. Hi Sir,

    Excellent lecture,i couldnt understand the calcuation of the redeemable debt but no i do.

    The only queston i have is on the fomula you used for IRR on example 8.

    In the Kaplan text book it shows the formula as being IRR=L+ NL/(NL-NH)x(H-L)

    Calculation in the example in the notes used x for the part NL/(NL x NH) although the result for the example was found using addition NL/(NL+NH) which you also used in the video lecture.

    The text says minus sign NL/(NL-NH).

    So whats the correct formula? Is it plus or minus?

    Kindly assist.Thanking you in advance

  3. Did you write a -ve 85 in year 0 because it is from the investor’s perspective? If so, Why did you deduct corporation tax from the interest income? Tax allowance is for the companies right?

    • We show the 85 as negative simply because we are used to calculating IRR’s for projects when the flow at time 0 is an outflow and is followed by inflows.
      By all means show 85 as positive and all the other flows as negative – the IRR will obviously be exactly the same.

      I only deducted the tax from the interest when calculating the cost of debt to the company – the company gets the tax saving.

  4. Dear Lecturer,

    Thanks very much for your teaching, which is super helpful.

    I am just wondering in terms of Example 8. For a bond that will be redeemed at a premium, will the premium (say 10% in this case) tax deductible, as it is still part of the Finance Cost? Or, we just follow the rules that we always treat redemption as non-deductible?

    Thanks and look forward to your reply.

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