Cost of debt - Avem Q1 Dec 2014

The 4.80% is the pre-tax cost of debt, and this is always what is used to calculate the market value of debt. When calculating the post-tax cost of debt (for the risk adjusted cost of capital) the answer has multiplied the 4.8% by (1 - tax rate). (You can find lectures working through the whole of this question, linked from the following page: https://opentuition.com/acca/afm/afm-revision-lectures/)

Yes I am watching lecture, and you say that they use net of 4.8% due to time constraitns, but normaly IRR would be accurate. So I understand that it depends what is given in the scenario. If they will give required rate of return (which is risk free rate + spread), I multiply by 1-t and use it as cost of debt for WACC calculation, if not IRR calculation has to be performed, is that correct?

That is correct :-)

hi sir,my question is a bit different i did not understand why did we use wacc in this question, rather that cost of equity as the discount rate. what is the logic or how to understand why i selected wacc?

We always discount at the WACC on the assumption that the gearing of the company will not change significantly. When there is a significant change in the gearing (or when told to) we then use an adjusted present value approach, but that is not the case here.

ok sir thanks

You are welcome :-)