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Dear Sir,
In Example 8 of the Chapter 17 – Cost of Capital, since debentures are redeemed at premium of 10% at the end of 5 years, wont there be an expense of Premium on Redemption of Debentures $2 each year (which in itself is not a cash flow) but it will reduce the tax expense by 2*30% = 0.6 each year .
Why is this not taken into account for calculating cost of capital?
I had asked the same question on the comments of Cost of Debt lecture but i think it has been missed out
Whatever the real position is with regard to tax (of which I am not sure, because I do not teach tax 🙂 ), in F9 we always (without exception) assume that there is no tax relief at all on the repayment – only on the interest.
Sorry I did not answer your comment on the lecture, but it is impossible for me to check all the comments – there are so many of my lectures it is just not feasible. I can only reply to those that I see as showing in the sidebar on this page. However I always reply to posts in this forum within 24 hours 🙂
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