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Hello,
I am having some problems figuring out how to calculate the cost of capital of the following:
14% irredeemable loan notes, quoted at par. B/S value £5m. CT 35%.
I need Kd for my WACC calculation.The MV I assumed it to be £5m (i.e. £5m*100/100)
Kd however, I am not sure….what about Kd = 0.14(1-0.35) = 9.1%?
If I divide this by 100 (MV) I get a weird percentage = 0.091%Any help would be much appreciated.
Thanks,
SilviaWhy on earth do you want to divide by 100 twice? 🙂
If it is $100 nominal then the interest is $14.
So the cost of debt is 14(1-0.35) (after tax interest) / 100 (market value of debt) = 0.091 or 9.1%
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