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Cost of Debt- Redeemable Debentures

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Cost of Debt- Redeemable Debentures

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • Author
    Posts
  • February 4, 2018 at 6:49 pm #435090
    sehmi
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Dear Sir,

    Your lectures are amazing.

    I have a question regarding what discount rate do you use when discounting the cash flows under redeemable debt. In example 8 you have used 10% why and how do you get that rate. Aren’t we supposed to use the investors required rate of return which is going to be (6/85)- interest/mv(ex-int).

    Thanks
    Bandana

    February 5, 2018 at 12:18 pm #435259
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54806
    • ☆☆☆☆☆

    Just as with all IRR’sm you can use any two rates.

    I usually start with 10% as my first guess because it is in the middle of the discount tables 🙂

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