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Cost of debt

Forums › CIMA Forums › Cost of debt

  • This topic has 0 replies, 1 voice, and was last updated 1 year ago by mamzie@03.
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  • May 9, 2024 at 3:01 am #705130
    mamzie@03
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    • Topics: 1
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    • ☆

    Alternative 2: Raise a bank loan of $28.5 million on 1 July 2012. The interest rate would be
    5% per annum for the first 3 years and 10% per annum for the following 3 years. The loan
    would be repayable on 30 June 2018.
    Interest would be payable annually in arrears on 30 June each year. Assume that interest paid
    can be relieved for tax at a rate of 30%. Assume tax is payable at the end of the year in which
    the taxable profits arise and sufficient profits exist to set off all interest payments.
    Required
    (a) Calculate the after-tax cost of debt for each of the two alternatives.

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