december 2011 q 3 — OpenTuition Forums

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KKanan6y ago

Hi Dear Tutor, I have a question. How can I know that cost of bank loan?6% has been given but If it is coupon rate not cost of debt? Thanks in advance

John MoffatTutor6y ago#1

As the examiner states in his answer (and as I explain in my lectures) bank loans do not have a market value - the cost of the loan to the company is the 6% less tax relief and the 'market value' in the calculation of the WACC is the amount of the loan.

KKanan6y ago#2

Understood Dear Tutor.

John MoffatTutor6y ago#3

You are welcome :-)