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Hi
I have always done the IRR based on the value of one loan note, however yesterday looked at answer to a q in R&R and it was based on entire value of debt and interest, so in Dec Mock exam did it this way – answer was based on one loan note.
My Q is – does it matter? Will I be safe enough to always base on one loan note and interest etc.?
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Hi Karen,
Your posting has the caption IRREDEEMABLE debt
IRR (Internal Rate of Return) is NOT used to calculate the cost of IRREDEEMABLE debt. IRR is used to calculate the cost of REDEEMABLE debt after tax.
Cost of IRREDEEMABLE Debt Model:
Kdat (to Company) = *** Nominal Annual Interest (1 – t ) / M Price p.u.
*** (NI after tax)
Regards, Kevin Kelly
Apologies for confusion – I meant redeemable debt, will it matter if I base the
IRR on one loan note as has been the way with all of the questions I have covered (except one) or are there circumstances when the totals must be used?- Topics: 1
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Just use the cash flows pertaining to the one bond (loan note) given in the question and you’ll be perfectly ok.
regards, Kevin Kelly
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