In DEC 12, COEDEN CO, PART (A)
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 ????
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one question !
8y ago#14.9% is used to calculate the market value of the debt. The market value is determined by the investors (the present value of future receipts discounted at their required return).
Company tax is of no relevance - it is only relevant when calculating the cost of debt to the company.
Please watch the Paper F9 lectures on the valuation of securities, because this is revision of Paper F9.
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