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To Find The Market Value Of Bond A, They Used Pretax Cost Of Debt And Pretax Cost Of Interest.
Is It Okay If I Use Post Tax Cost Of Debt With Post Tax Cost Of Interest.
It Gives A Slightly Different Answer.
Market Value In Former : 91.24
Market Value In Latter : 93.2952I am sorry but I do not have the Kaplan books (only the BPP Revision Kit), and so I am unable to help you.
However, without seeing the question, it is investors who determine the market value of debt by discounting the pre-tax flows at their required rate of return (which is pre-tax). The investors are not affected by company tax. Tax is only relevant when calculating the cost of debt to the company.
This is all explained in my free lectures on the valuation of securities. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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