I don't understand the calculation of the Market Value of debt.
I should think that you discount both the redemption value and the coupon interest payments,
Interest payments after tax are ( $ 1 747 200 ) (5.2%) p/a
with a future value of ( $ 42 000 000 par)
Discounted at 4.9%
therefore the present value is $ 41 152 026
Ask the Tutor ACCA AFM
Coeden Co Dec 2012 Section A (a)
9y ago#1When calculating the market value, tax is not relevant.
It is investors who fix the market value and they are not affected by company tax.
Tax is only relevant when calculating the cost of debt to the company (because the company gets tax relief on the debt).
I do suggest that you watch my free lectures on the valuation of securities because I do explain this with examples.
Sign in to reply to this topic.