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This doubt is from the example (4.4) on page 271 of the BPP text.
In calculation of the cost of loan capital I don’t understand why they have subtracted 1 . . .
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You need to adjust the cost of capital for the tax rate–interest payments on the loan are tax deductible for the company. AKA ‘the tax shield.’
For example, a 10% loan with tax at 30%: the cost of capital would be 10% * (1-0.3)=7%
This is the only complication to the interest rate of a loan in F9.
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