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after tax cost of debt

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › after tax cost of debt

  • This topic has 3 replies, 2 voices, and was last updated 9 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • September 9, 2021 at 8:31 am #635053
    cadhakan
    • Topics: 71
    • Replies: 123
    • ☆☆

    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
    • Replies: 49583
    • ☆☆☆☆☆

    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
    • Replies: 49583
    • ☆☆☆☆☆

    I do not know which exam you are referring to or where you found the question.

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