FMMCQ Test question M.V of debt

What you are not understanding is that the market value is determined by the investors (not the company). We always in the exam ignore personal (income tax) and therefore the investors expected receipts are the full amount of the interest. The cost to the company will be lower, because the company saves tax on the interest. However it is not the company that determines the market value - it is the investors. (If you are unsure, then my free lecture on this will help you where I stress the difference between the investors and the cost to the company.)