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In business valuation, while calculating market value of redeemable debt, which rate will be used as a cost of capital rate? Before tax of debt is 9% and after tax is 6%
They have used 9%, but in debt we always use post tax, No?It does seem that you are not watching my free lectures and you cannot expect me to type them all out here!!
It is investors who determine the market value and they are not affected by company tax. We always discount at the investors required rate of return when calculating the market value, and this is pre tax.
Tax is only relevant when calculating the cost of debt to the company.
I stress this and illustrate this in my free lectures, because it is important for the exam.
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