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Dear Sr,
BPP Kit Q229: When calculate the 1-7 year interest, why don’t we need to consider the Tax saving benefit? Can we use the “before Tax cost of Debt” to find the discount factor for including the Tax saving benefit here?
Thanks.If you had watched my lectures, you would know that the market value of debt is determined by the investors. They do not receive a tax benefit – it is only the company that gets a tax benefit – and therefore the MV is the present value of their expected receipts discounted at their required rate of return (which is the same as the before tax cost of debt).
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