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While calculating cost of redeemable debt, the cash flows are taken
Market value (X)
Interest Y
Nominal value at the end Z
In reality market value is the amount the company can obtain by issuing debt instrument and interest, nominal value are cash outflows for the company. Cash flows should be
Market value X
Interest (Y)
Nominal value at the end (Z)
Am I right?? or there is any explanation??
Thank youIt does not make any difference. The reason is that you are calculating the IRR which is when the NPV is zero. If you list the flows the first way you are looking for ‘plus’ zero and if you list them the second way you are looking for ‘minus’ zero.
They are both the same 🙂
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