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Hi Moffat
_ in (b) kd(1-t) should not be equal to cost of debt which i studied in class lectures but examiner took it????
I am away from home until Thursday, and I only have access here to questions back to 2001.
If you ask again on Thursday then I will answer you when I am home.
( Kd(1-t) is the cost of debt when it is irredeemable debt, but it is not the cost of debt when we have redeemable debt – they you need to calculate the IRR. I assume that you have watched my free lectures on the cost of capital?)
yes Mr Moffat watched already and understood same wrong treatment have been done in jupiter partA 4.65%*75% if u can check when calculatinG W.A.C.C
_ a. so IRR = cost of debt we will take in W.A.C.C without taxing.
_b. wht if question already gve us cost of debt of reedemable debt , we will assume that it is relevant to take in W.A.C.C and whether it need taxing.
cost of debt gven in jupiter and it is reedemable and it got taxed see
WACC = (4.65% × 0.107 × [1 – 0.25]) + (8.5% × [1 – 0.107])
= 7.96%
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