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Dear Moffat,
when calculating WACC:
if I account for tax relief at the stage of calculating cost of debt, I do not have to apply the discount rate (1-T) after the cost of debt when applying WACC formula because this has already been accounted. Am I right?
ex. cost of irredeemable debt(Kd) = i(1-T)/Market value
than in WACC this element will be (Vd/Ve+Vd)*Kd
and not (Vd/Ve+Vd)*Kd(1-T) as in the WACC formula in the formula sheetIs this logical?
Thank you
Yes – you are correct.
(and with redeemable debt you have no choice but to calculate the cost net of tax and then to ignore the (1-t) in the WACC formula)
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