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how to calculated cost of debt ? as WACC = Wd Rd (1-T) + Wp Rp + We Rs
how to calculate Rd ?? what is the formula ?
You are using different symbols than the formula on the formula sheet given in the exam.
However I assume that by Rd you mean Kd which is the return to debt lenders.If the borrowing is irredeemable, then Kd is Interest/Market value (and then multiplying by 1-T accounts for the tax relief that the company gets).
If the borrowing is redeemable (i.e. repayable, which is more likely in the exam) then you cannot use the WACC formula as it is printed. Instead of using Kd(1-T) you have to calculate the Internal Rate of Return of the after tax interest flows.
The best way of seeing what I mean is to watch my lectures on calculating the cost of debt (and the WACC). You can find links to them on this page: https://opentuition.com/acca/f9/acca-f9-lectures/
(Chapter 11 covers the cost of equity, and Chapter 12 covers the cost of debt and calculating WACC)
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