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Problem-kaplan final assessment question-2,WACC- (redeemable 8% loan stock)

Forums › ACCA Forums › ACCA FM Financial Management Forums › Problem-kaplan final assessment question-2,WACC- (redeemable 8% loan stock)

  • This topic has 1 reply, 1 voice, and was last updated 13 years ago by Faisal.
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  • December 4, 2011 at 4:39 pm #50901
    Faisal
    Member
    • Topics: 4
    • Replies: 12
    • ☆

    Does anybody know which formula they used to get the cost of the redeemable loan stock??? its not IRR !!

    December 4, 2011 at 4:53 pm #90584
    Faisal
    Member
    • Topics: 4
    • Replies: 12
    • ☆

    The question is:
    8%loan stock 2009 is $400.
    Loan stock interest is paid annually in arrears and is allowable for tax at corporation tax rate of 30%.(tax payable in the same year)
    The loan stock was priced at $98.62 ex-interest per $100 nominal on 30 june 2008. Loan stock is redeemable at par on 30 June 2009.

    Ans: cost of debt= 32x(1-0.3)+400/(1+kd)=400×0.9862
    simplifying:- (1+kd)=22.4+400/(0.9862×400
    kd=7.08%

    (does any one know what formula is this???????????? pls explain…..)

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