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after tax cost of debt

This topic has 3 replies, 2 voices, and was last updated 9 months ago by John Moffat.

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September 9, 2021 at 8:31 am #635053
cadhakan
- Topics: 71
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M ltd co issues loan notes with a par value of 100$million at price of 90$. per 100$.
the annual coupon rate interest 10%. the loan caital is redeemable in two years time asits nominal value.
tax at30%

what is after tax cost of debt?

ans is 13%

but i did nt understand how they get 13%

sir we can us this formula right in cost of debt calculation?
kd(-t)/mv ?

can you plz help me out how to solve this qstn
September 9, 2021 at 12:51 pm #635083
John Moffat
Keymaster
- Topics: 57
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For $100 nominal, the flows are:

0 Market value. (90)
1 -2 Interest (after tax). 7 p.a.
3. Redemption 100

The cost of debt is the IRR of these flows as is all explained in my lectures on the cost of capital.
September 9, 2021 at 1:15 pm #635101
cadhakan
- Topics: 71
- Replies: 123
sir when i do in excel diff method to get irr i get 11%

year cf

0 -90
1 7
2 7
3 (100+7)

than i use =irr(sum) of the above i get 11% but the ans is 13% in exam this methos is easy?
September 10, 2021 at 7:57 am #635229
John Moffat
Keymaster
- Topics: 57
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I do not know which exam you are referring to or where you found the question.
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