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Hi Sir,
“She is considering a scheme to repay current borrowings of $800m and raise new capital through a bond issue of $2,400 millon. The current debt consists of several small loans raised in the Euro market with differing maturities and carrying an average rate of interest of 5.6%. The average tern to maturity of the existing debt is 4 years……
How come to calculate Kd, we cannot use interest (1- tax rate), which is 5.6 (1-tax rate), but we have to use kd = risk-free rate + credit risk spread instead? Why i cannot take the current borrowings as a form of borrowings from the bank?
Please advise.
Thanks!
Regards,
Joanna
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