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Mr Moffat,
May you please explain when we use before tax cost of debt and when we use after tax cost of debt for the calculation of current market value of loan note?
Thank you.
We never use the after tax cost of debt to calculate the market value!!
It is investors who determine the market value and they are not affected by company tax – we discount at the pre-tax cost of debt.
Tax is only of relevance when calculating the cost of debt.
I really do suggest that you watch the free lectures on the valuation of securities because it is all explained there.
(Our lectures are a complete course for Paper F9 and cover everything you need to be able to pass the exam well.)
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