corporate tax in the cost of debt

MMoloantoa9y ago

good morning Tutor please help, in some cases when deriving the cost of debt (bonds) the corporate tax would be included but in some cases it would be omitted and the argument would be that, that's the return to the investors therefore corporate tax is irrelevant because it is incurred by the company itself not the investors I am now confused, what is the correct treatment for this?? does it depend on the question itself or what best regards

John MoffatTutor9y ago#1

For the cost of debt we always take the after-tax interest - without exception. When determining the market value of debt the tax is irrelevant because it is investors who determine the market value, and they are not affected by company tax.

MMoloantoa9y ago#2

thanks very much John I think it makes sense now, Merry Christmas and prosperous new Year

John MoffatTutor9y ago#3

You are welcome, and a Merry Christmas and a Happy New Year to you also :-)

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