Skip to content
Sign inRegister

Ask the Tutor ACCA FM

Cost of Debt

SStefano11y ago
hello Mr Moffat, I came across two different formulas to compute cost of irredeemable debt 1) K=i/P+g 2) K=i(1+g)/P + g when is it correct to use either the first or the second formula? Thank you Stefano
John MoffatJohn MoffatTutor11y ago#1
Both formulae are nonsense and you can not have come across them for irredeemable debt!!! The cost of irredeemable debt is Int(1-T)/P (The second formula that you have written is the formal for the cost of equity - not debt!! There is no growth in debt interest.) You really should watch the free lectures on calculating the cost of equity and the cost of debt.
SStefano11y ago#2
Yes, I really got confused thank you
John MoffatJohn MoffatTutor11y ago#3
You are welcome :-)
Sign into reply to this topic.