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Sir, could you please help me out with the following confusion.
When we have long-term borrowings with all information in order to derive the cost of debt, I am always confused in the following calculation: ( I always have a pro forma that I follow)
for example:
MV – 103.50
interest (5% * (1-T)* NVand then
NV – and here I always get confused what is the nominal value? Is it the sum of MV + interest or is it a 100 , cause I don’t seem to understand the pattern.Thank you in advance for the clarification
The nominal value refers to the face value or par value of the debt instrument. In the context of long-term borrowings, the nominal value is typically $100. It represents the principal amount that will be repaid at maturity. So, when calculating the cost of debt, you should use the nominal value of $100.
The MV (market value) represents the present value of the future cash flows, including interest payments and the repayment of the principal.
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