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Hi Sir,
in the question part A it tell us to calculate the current WACC of the company. I understand all the steps but just the last step when applied formula. I don’t understand why the debt part answer did not take the debt after tax but just take the full amount didn’t times with ?1-tax?.
Hope Sir can help me?Thank you so much???
The cost of debt is already after-tax (as always when it is redeemable debt). We do not therefore multiply by 1-T which would then be accounting for the tax twice.
Using 1-T in the formula is only relevant for irredeemable debt.
I do stress this in my free lectures. 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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