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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Cost of debt and debt valuation
..just as a piece of revision .is my understanding correct
Mv of debt is always present value of future cash flows at required investor rate of return
If redeemable we do like irr way ..with taking into consideration the tax allowance for interest
But for redeemable cost of debt we do irr without taking into account the tax allowed for interest that would investor rate of return and cost of debt to company we incorporate tax allowed for interest to reach the figure by way of irr calculation .
For iredemable cost of debt it’s either
Kd= interest (1-t)/ market value
Or
Kd(1-t)
Where kd is investor rate of return
And mv of iredemable debt …it’s interest / kd
Is there anything I m wrong or missing .please guide
Thank u
What you have written is correct 🙂