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Hi:
ACCA Past Paper Dec 2010 Q 4 Part b
In this question they asked to calculate the after-tax cost of debt. In the Financial Statement given they have Long-term borrowings under non-current liabs. and they also have preference shares under equity.
In the ACCA answer they only calculated the cost of the long-term borrowings. Why isn’t the cost of pref. shares calculated also? I thought pref. shares are considered as debt in F9.
Please explain
Thanks in advance for any help.probably because preference shares is not tax deductible and has no interest so it is like an equity (even if it is debt). Just my thoughts
preference shares is not part of debt calculation,cost of preference is calculated as interest/market value of preference shares.
Cost of Preference shares is another component of wacc,so treat it seperately
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