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sir if we are fed with both coupon and Pre-tax cost of debt, then does that mean Pre-tax Kd=YTM or yield in other words?
Yes it does – the pre-tax cost of debt is the yield to maturity.
The coupon rate is simply the rate of interest on nominal value.Sir but when calculating Profits after interest, we multiply the book value of debt with Coupon or YTM for interest calculation that will go in the SPL?
In F7 we used to take YTM or effective rate as far as interest calcautlion was concerned in Statement of Profit or loss. And for Statement of cash flow we would take coupon payment. but in AFM am a little confused
The actual interest paid is always the coupon rate multiplied by the nominal value.
This is the case in real life, and in Paper AFM (and in Paper FR).
Sir I totally agree with you on that, that the cash outflow or interest paid is coupon multiplied by nominal value. But as far as Statement of Profit or loss(SPL) is concerned we should take effective rate or YTM.
Because the cash outflow may not be the same as the effective cost per annum for the company(lets say the bond was issued at a discount, in which case the effective rate is more than coupon).
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