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reedemable debt – example 8 – cost of debt

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › reedemable debt – example 8 – cost of debt

  • This topic has 1 reply, 2 voices, and was last updated 7 months ago by John Moffat.
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  • November 27, 2021 at 12:21 pm #641784
    abi712003
    • Topics: 10
    • Replies: 1
    • ☆

    shouldnt the 6% be tax deductable? 6 x 0.7 = 4.2 ?
    https://www.youtube.com/watch?v=-BfAxHDUhck

    November 27, 2021 at 1:47 pm #641797
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    Tax is not relevant when calculating the return to investors (in part (a) of the question) because investors are not affected by company tax.

    It is relevant when calculating the cost of debt to the company (because the interest does save tax).

    I explain this in the lectures working through both parts of the question (and the answer is of course printed in the free lectures notes as well).

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