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In DEC 12, COEDEN CO, PART (A)

This topic has 2 replies, 3 voices, and was last updated 3 years ago by John Moffat.

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April 29, 2018 at 5:27 pm #449358
foeldh123
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1. In the calculation of cost of debt where the answer sheet have shown that it is 4.9%.
If i’m not wrong, for the calculation of cost of debt, it is

(risk free rate + credit spread ) ( 1 – T )

However why 4.9 does not take into consideration of tax ????
May 5, 2019 at 6:38 pm #515031
louellend
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Because tax is considered in the WACC formula separately.
May 6, 2019 at 1:47 pm #515086
John Moffat
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louellend: Please do not answer in this forum because it is the Ask the Tutor Forum, and you are not the tutor :-). However, please do help people in the other AFM forum.

foeldh123:

The examiner was wrong to refer to the 4.9% as the cost of debt because it is before tax. However the question did not ask for the cost of debt, only the WACC, and as louellend has written, in the WACC calculation the examiner has multiplied by 1-T
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