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in calcuation of wacc why dont we take risk free rate for debt ?? do we always need to ensure proportion of debt : equity meet industry standards before proceeding with de gear re gear calcs??
I only have the latest edition of the BPP Revision Kit, and it does not have the question Romage.
However I think it is probably an old exam question, and so if you tell me which month and year I will be able to find it and then I will be able to answer you 🙂
I found it (although it is over 17 years old!!!)
We always use the cost of debt in the calculation of WACC (and certainly do not assume that it is risk free). We only assume debt is risk free when using the asset beta formula.
When gearing and regearing the betas we use the actual proportions of equity and debt. In this question it is simply the fact that the proportions are almost the same that means we can save time.
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