Cost of Debt- Redeemable Debentures

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February 4, 2018 at 6:49 pm #435090
sehmi
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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
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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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